Rehn: Lenders May Need to Boost Greek Aid



DAVOS, Switzerland—A senior European policy maker said euro-zone governments may have to increase their contributions to Greece’s debt deal, and said he was hopeful agreements could be struck soon to increase euro-zone bailout funds and International Monetary Fund resources.

European Union economics commissioner Olli Rehn also appealed to the U.S. and other countries not to block an expansion in IMF resources—even if they didn’t want to contribute directly.


“It’s in the interests of all concerned that we conclude a voluntary deal [for Greece] in the coming days, preferably in January rather than February,” he said in an interview.

Mr. Rehn said euro-zone governments may need to increase their financial contributions to Greece beyond the levels agreed to in October. This could require more lending by euro-zone governments and some concessions on interest rates on existing official loans—but no cuts in official debts.

Mr. Rehn said once a deal was reached with private bondholders in Greece’s debt-restructuring talks, a new analysis would follow to see if Greece’s debt is sustainable—after which the contribution of euro-zone member states might have to be adjusted. “I don’t rule out a small adjustment of lending needs of the euro-area member states,” he said.

His remarks came one day after IMF chief Christine Lagarde said that Greece’s public-sector creditors “will have to step in, too” if the private-sector deal didn’t result in a sufficient reduction in Greece’s debt.

German Chancellor Angela Merkel on Thursday shrugged off suggestions that public creditors to Greece should increase their contribution, stressing that debt-restructuring talks with Greece must first of all focus on a voluntary restructuring deal.


“We work on the basis that first of all a voluntary debt restructuring has to be negotiated in Greece. The criteria for this have clearly been set in October,” Ms. Merkel said. “Growth assumptions have changed in the meantime. That’s why finance ministers have asked to conduct further negotiations. I think these are on the right track.”

Greece’s main public creditors are the European Central Bank and euro-zone governments. After Ms. Lagarde’s remarks, the IMF said it “has not asked the ECB to play any specific role.” The fund said it has “no view” on the relative combination of private- and public-sector contributions, but sees it as “essential” that any Greek deal brings the nation’s debt down to 120% of gross domestic product by 2020.

Talks on the Greece restructuring deal with private bondholders in Athens Thursday ended without resolution and were to resume on Friday. “Some progress was realized,” the Institute of International Finance said..

Mr. Rehn said he was hopeful an agreement could be secured soon to lift the €500 billion ($655.3 billion) cap on the resources of the euro-zone’s bailout funds by allowing the resources of the current temporary fund, the European Financial Stability Facility, and the future permanent fund, the European Stability Mechanism, to be combined.

Germany has long been the biggest obstacle to this development, and in a speech Wednesday, Ms. Merkel gave no hint she had changed her position. Euro-zone leaders are to debate the issue in coming weeks with a formal discussion among the leaders currently planned for March.

It remained uncertain whether combining the funds, which would enlarge EU bailout resources to about €750 billion, would satisfy the U.S. and other major shareholders in the IMF. The U.S. won’t put any of its own money on the line, but has repeatedly said a greater euro-zone commitment should accompany any expansion in euro-zone resources. The IMF is seeking up to $600 billion in new bilateral commitments, of which EU governments are expected to pledge a third.

Mr. Rehn said it was important to avoid “a chicken-and-egg deadlock” in which contributors to an expansion in IMF resources held back awaiting a agreement on euro-zone bailout-fund expansion.

A meeting of finance ministers of the Group of 20 in late February in Mexico City is the most likely venue for a decision on the IMF.

He called on the U.S. not to stand in the way of a boost in IMF resources.

“It’s important that all the key members of the IMF contribute to an increase of IMF resources, including the United States because the U.S. has so many times underlined the importance of resolving the euro-area debt crisis,” he said. “If a country can’t make a concrete contribution, at least it’s important not to block an overall agreement on IMF resources.”

Mr. Rehn said in dealing with longer term strains within the euro zone, “it’s important that surplus countries and deficit countries do their part.” For surplus countries, he said, this would involve “further strengthening domestic demand essentially for structural reforms and possibly through investment in infrastructure that would have a positive impact on growth.”