EU big guns try dousing fervour over Greek debt restructuring

(PARIS) - European Union heavyweights are lashing back at mounting market speculation that Greece will need to restructure its debts, as they try to shore up confidence in their fix to the eurozone's problems.

Greece's 110-billion-euro ($160 billion) bailout last year was supposed to put at rest questions about its solvency, but Athens' failure to meet deficits cutting targets and its poor economic performance have raised fresh doubts.

Yields on Greek government 10-year bonds have leapt to over 15 percent and on two-year bonds to over 23 percent in the secondary market, indicating deep scepticism among investors they will be repaid.

In an indirect confirmation of how seriously they consider the market jitters, senior European officials have spoken publicly in recent days to steadfastly reject a restructuring.

Following Portugal becoming the third eurozone country on EU-IMF rescue crutches with a 78-billion-euro programme, a Greek restructuring would leave the region's image of stability in tatters.

"The restructuring of debt is not an option, it would lead to enormous problems which have not yet been identified," said Jean-Claude Juncker, who is Eurogroup head of eurozone finance ministers and also Luxembourg's prime minister, on Monday.

EU Economic Affairs Commissioner Olli Rehn also said that would have "devastating consequences" for Greece and the euro area as a whole.

Restructuring is an umbrella term grouping options to avoid outright default ranging from 'haircuts' that entail losses for debt holders, to a repayment extension negotiated with creditors.

Banks and pension funds, and consequently many savers, stand to lose billions from a restructuring, which could potentially trigger another credit crunch and economic slump.

BNP Paribas chief executive Baudouin Prot recently put the cost of a Greek restructuring to the French lender at about 1.2 billion euros if the bonds lose roughly a quarter of their value.

The bank would be "well able to absorb" the shock, he added.

Greece has a crushing debt of about 340 billion euros ($504 billion), nearly a year and a half of its economic output.

Painful public sector spending cuts, tax hikes and pension freezes accompanied last year's bailout.

Greek citizens already have to work harder, doing longer hours for less pay and the state also has to sell off some of its crown jewels -- everything it owns including some islands, bar the country's iconic relics of antiquity.

However the government was only able to squeeze the deficit down to 10.1 percent of gross domestic product instead of its original target of 8.1 percent.

The economy has gone into a tailspin, contracting by 4.5 percent last year, dampening prospects that it will be able to get on top of its debt mountain through economic growth.

Moreover, Europe's steadfast position on Greek restructuring may be starting to waver.

German Finance Minister Wolfgang Schauble recently said "new measures" would be needed if structural reforms being carried out in Greece were not enough to overcome its debt crisis.

On Monday, European Central Bank policy-maker Nout Wellink said he was open to the idea of prolonging maturities on Greek debt, becoming the first senior ECB official to publicly admit that possibility.

The Greek government, which has also adamantly rejected forcing bond holders to accept losses, said this week that it wanted to prolong the repayment period and reduce the interest rate paid on debt issued by some Greek localities.