Report says Berlin has plan to trim Greek debt

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Germany is working on a plan to refinance Greece's crushing debt according to the magazine Die Zeit, a report the government formally denied.

An article to appear on Thursday speaks of "internal government analyses" that moot a plan to let Greece retire some of its debt early with help from the European Financial Stabilisation Facility.

It would cost Athens less to borrow money from the EFSF than it would pay to service the debt, thus helping Greece get through a debt crisis that has spread to Ireland and might threaten Portugal as well.

"The beauty of this solution: Greece restructures (its debt), borrows money at much better conditions and thus has a margin for growth policies," the magazine explained.

The EFSF would first have to be enlarged and conditions for accessing funds it raised be tightened, as backers within the 17-nation eurozone have demanded, Die Zeit added.

A German finance ministry spokesman told AFP: "We categorically deny (information contained in) this article."

A ministry statement added that "within the eurozone there is at present a discussion on a durable stabilisation strategy, within the framework of rules set at the European summit in December.

"Restructuring Greek debt is clearly not contained within this framework."

But analysts said such a move would allow Greece's crushing debt to be restructured in a relatively smooth fashion.

"We believe that there is now a significant chance that European policy makers will work towards a market-based restructuring," said RBS economist Jacques Cailloux.

"This is an elegant solution as it is based on the market pricing of the chance of default rather than imposing on the market a specific haircut," or loss, he added.

Erik Nielsen at Goldman Sachs added: "The fixing of the eurozone problems is still in the early stage of being worked out, and trial balloons will continue to be sent up in coming weeks, and the impact could be huge."

© 2011 AFP

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