Germany considers debt buyback of Greek debt

Germany’s finance ministry is considering a debt buyback as a possible way of reducing Greece’s huge debt pile, which threatens to rise well above a target level of 120% of GDP by 2020, according to German news magazine Spiegel.

The Greek government could borrow money from the eurozone’s permanent bailout fund and use this to buy back its own debt, which at present trades at around 25% of its face value.

Buying just €10m worth of Greek bonds could reduce the debt mountain by €40m, Spiegel wrote. Talks would have to take place with debt-holders to see if they would accept such a price for their Greek paper.

A spokesman for the finance ministry declined to comment, directly, on the report yesterday, saying Germany was waiting for a report into Greece’s progress in meeting the bailout conditions of its troika of international lenders.

“We don’t want to engage in speculation,” the spokesman added.

Last week, European Central Bank executive board member Joerg Asmussen made the same suggestion about the Greek government buying back its own debt.

The troika is expected to present a report, shortly, on Greece’s progress and whether it can cut its debt to sustainable levels.

That report is expected to show that Greece is hugely off track on its commitments, which critics blame on a lack of political will, political paralysis during repeat elections this year and a deeper-than-expected recession.

But, with Greece due to run out of money next month and Europe determined to avoid fresh market turmoil that drags down bigger economies such as Spain and Italy, Athens is expected to ultimately secure its next €31.5bn aid tranche.