EU’s Tusk urges debt relief as part of Greek deal

The European Union’s chairman joined growing international calls for Greece to be granted debt restructuring as part of any new loan deal if it delivers convincing reforms to avert imminent bankruptcy.

The call was an implicit challenge to Germany, Athens’ biggest creditor, which has so far ruled out any write-offs as illegal and taken a restrictive view of reprofiling the debt to help Greece over a major repayment hump this year.

Greek Prime Minister Alexis Tsipras was finalizing a tough package of tax hikes and pension reforms to send to euro zone authorities by midnight in a race to secure agreement at the weekend on a third financial rescue for his country.

European Council President Donald Tusk, who is to chair a special euro group summit on Sunday that will decide Greece’s fate, hoped the plans would be concrete and realistic.

“The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. Only then will we have a win-win situation,” he said. “Otherwise, we will continue the lethargic dance we have been dancing for the past five months.”

German Chancellor Angela Merkel said a classic “haircut” – a write-off of principal – was out of the question. She did not rule out other forms of debt relief such as extending loan maturities, lower interest rates or a longer moratorium on debt service payments.

International Monetary Fund chief Christine Lagarde and U.S. Treasury Secretary Jack Lew both said on Wednesday that debt restructuring must be part of a viable solution to keep Greece in the euro zone.

Lagarde said any program would have to walk on two legs. “One leg is about significant reforms and fiscal consolidation … And the other leg is debt restructuring, which we believe is needed in the particular case of Greece for it to have debt sustainability.”


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