Angela Merkel said a pre-arranged meeting was taking place but it had nothing to do with the idea of Greece leaving the euro. Photograph: Geert Vanden Wijngaert/AP
Fears for euro in Greece prompt secret talks
Finance ministers from an inner core of eurozone countries were holding secret talks in Luxembourg tonight to discuss a possible debt restructuring for crisis-ridden Greece.
The single currency's leading creditor nations – Germany, France, Finland and the Netherlands – all attended the meeting, called amid concerns that Greece's problems were nearing breaking point.
Sources said negotiations centred on the mounting eurozone debt crisis, and included not just Greece but the terms of Portugal's bailout and Ireland's demands for easier repayment terms on its loans. But they denied reports coming out of Germany that Athens had floated the idea of leaving the single currency altogether.
The European commission was also at the talks at Château de Senningen, a site used by the Luxembourg government for official meetings, which involved the countries that have provided the bulk of the funds for the bailouts of Greece, Ireland and Portugal. Most of the governments from the 17-nation eurozone were kept in the dark about the talks, and said they knew nothing about the crisis negotiations. Greek media confirmed that a plane carrying the Greek finance minister, Giorgos Papaconstantinou, had landed in Luxembourg.
Angela Merkel's spokesman said a prearranged meeting was taking place, but it had nothing to do with the idea that Greece would leave the euro.
"There is a meeting of some finance ministers that has long been planned. Greece exiting the eurozone is not on the agenda of that meeting, and it has never been," Steffen Seibert said.
Instead, sources said the creditors were looking at a range of options for Greece including a fresh bailout, giving it longer to repay its debts or forcing banks to take a loss on Greek bonds.
On the foreign exchanges, reports that Greece would be the first country to quit the single currency led to a sharp sell-off of the euro against the dollar. Spiegel Online, quoting German government sources, said that Greece would leave the euro unless it was allowed to restructure its massive debts. Greek officials categorically denied the report with many describing it as a "joke".
"We are putting all our effort into resolving our indebted public finances precisely because we are in the eurozone and want to stay there," said one official, requesting anonymity. "What it is saying doesn't make any sense." Others described the report's timing as "strange and suspicious".
In a statement – released only after other countries had rushed to deny the report – the Greek finance ministry said the government had repeatedly rejected such scenarios. "Such articles are not only provocative but also highly irresponsible as they undermine Greece's efforts and those of the eurozone and serve only the interests of speculators," the statement said.
Reports in Greece have already talked about a "velvet restructuring" that could include extending outstanding debt and a voluntary agreement to modify repayment terms before 2012. The country wants to return to the debt markets early next year, even though its debt is expected to reach 160% of GDP by then. The country's borrowing costs have been rising as its rating has been downgraded eight times since January 2009, when it had an A rating. A year ago, just after the bailout, it was the first eurozone country to have its debt rating cut to junk when ratings agency S&P had warned that bondholders could recover as little as 30% if the country restructured its debt.
Amadeu Altafaj Tardio – spokesman for Olli Rehn, the monetary affairs commissioner – would not confirm or deny the meeting. "I am not aware of any meeting in Luxembourg," he said. "We have no comment on the Der Spiegel report."
Sony Kapoor, managing director of Re-define, a Brussels-based thinktank, said: "It would be irresponsible for the creditor countries in the euro area not to be having serious and intense discussions about unresolved questions to do with ongoing problems with Greece, the Portuguese package and Irish demands for easier terms.
"However, it is most probably a vicious rumour or a wild Chinese whisper that Greece would have asked for a possible exit from the euro. This would be a disaster for Greece and the wider euro area."
But City analysts said the reports coming out of Germany were plausible. Jonathan Loynes, of Capital Economics, said: "If you are Greece and your country is in the mess that is in, and you are thinking about the next five years and the austerity measures you have to go through to stay in the euro, you have a responsibility, I would suggest, to think about leaving."
Gerard Lyons, chief economist at Standard Chartered bank, said pressure had been mounting from Berlin. "I think the Germans have been playing hard ball for a few weeks now. If Greece does go I don't think they will be the only one."
Spiegel Online said the meeting was being held under strict secrecy and that both the German finance minister, Wolfgang Schäuble, and his deputy, Jörg Asmussen, were attending.
It quoted from what it said was an internal German finance ministry paper that Schäuble was taking with him to Luxembourg, which warned that a Greek exit "would lead to a significant depreciation of the domestic currency versus the euro" and increase Greece's debt levels to 200% of GDP.
"The government has raised the possibility of leaving the eurozone and reintroducing its own currency," the report said.
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