EU chiefs take tough line on debt restructuring for bailout trio

IRELAND, Portugal and Greece have been warned they should resign themselves to a period of painful adjustment and debt restructuring was not an option, by senior EU figures at a major conference in Brussels.

Irish Congress of Trade Unions general secretary, David Begg, said that the current recipe will not work and that without changes Ireland could be forced to default.

The main message from the influential Brussels Economic Forum was that Greece has to make greater efforts before they can receive any more help. The Troika is currently at work in Athens preparing a new package as EU leaders admitted that the agreed measures were not working.

Germany’s finance minister Wolfgang Schaeuble sounded even tougher than usual. He warned that throwing “other countries’ money at the problem” would not solve the crisis.

“The union was not intended to be a system of redistribution from richer to poorer countries. A member state has to be willing to deal with problems itself. We can help them, but we cannot do their job,” he said.

The EU/IMF rescue loans were just to give Ireland, Portugal and Greece time to get their economies back on track. The single monetary system was not designed as a get rich scheme or to redistribute from the rich to the poor by eurobonds or transfers, he said.

And he warned that the new permanent rescue fund, the European Stability Mechanism, would only be used as a last resort when the euro was threatened.

Commission president Jose Manuel Barroso warned also that debt restructuring could not be an alternative to “admittedly painful reforms”.

Mr Begg, speaking about key lessons to be learned from the global crisis, said the eurozone needed to create a European bond market that would make available a large amount of liquidity when a country was trying to struggle in a high debt situation, where one problem compounds another.

He did not favour unilateral default for Ireland but the alternative would be some kind of agreed restructuring with longer maturities and as an option some Europeanisation of the debt.

He envisaged a red and green eurobond as put forward by the Brussels-based think tank, Bruegel, last year where the EU would issue up to 60% of the bonds recognising that debt to GDP should be at a maximum of 60%, and any debt beyond that would have to be raised by the member state concerned.

“Ireland has little chance of getting back into the markets in 2012. We have a huge overhang of debt without the growth needed to break out of this vicious circle.

“The choice is to default. The EU/ECB/IMF is keeping us alive at the moment. Default would have huge negative consequences so the better option would be eurobonds,” he argued.