International Monetary Fund chief Christine Lagarde said Wednesday that Greece’s public-sector creditors may have to take a hit on their loans if private lenders can’t agree on a restructuring plan to make the country’s debt sustainable.
Negotiations between the Greek government and private lenders have bogged down over a key sticking point: how much interest new bonds issued as part of a debt exchange would pay.
The chairman of the euro-zone group of finance ministers said this week the rate should be less than 3.5% to lower Greece’s debt to 120% of gross domestic product by 2020.
Unless private creditors agree to take enough of a voluntary haircut on their holdings of Greek bonds, the IMF and the European Union won’t channel more funds to the debt-laden country. That money is crucial if Greece is to avoid a default.
“The bigger the private effort, the smaller the participation of public creditors will need to be,” said Ms. Lagarde during a briefing in Paris. “If the level demanded of private investors isn’t reached, then public creditors will have to step in, too,”
Ms. Lagarde said it wasn’t for her to decide which official creditors should shoulder any additional burden.
“The balance between private sector and public sector participation is a matter for Greece’s creditors and the euro-zone countries,” she said.
Greece’s principal public creditors are the European Central Bank and euro-zone governments.
Euro-zone officials are scrambling to build a firewall around Greece and stop the protracted sovereign-debt crisis from engulfing Italy.
An agreement between private-sector lenders and the Greek government is a key part of that effort.
