Rehn: Greek haircut unlikely

“It doesn’t mean that there would have to be a classic haircut on capital,” Rehn, who was European Union economic and monetary affairs commissioner from 2010 to 2014. “Instead, I would expect that the euro-zone countries would rather look at ways and means of improving debt sustainability by further extending loan maturities.”

Rehn’s comments, Bloomberg noted, highlight a top test for any Greek government led by Alexis Tsipras’ SYRIZA party.

He said the next Greek government will have limited scope to loosen the fiscal-austerity and market-opening conditions. “My personal view is that there’s not much room for maneuver in renegotiating the terms of the economic-adjustment program,” he said in his Strasbourg office.

He also warned about any inconclusive Greek election this month, saying Greece should avoid a replay of 2012 when a political stalemate led to twin parliamentary ballots over six weeks, a suspension of the aid program and speculation the country might be forced out of the euro. Such a scenario faded after a hard-fought revival of the Greek rescue during the first six months of the Samaras government, Bloomberg noted.

“From the Greek perspective, the best way to move forward is to reduce any uncertainty, which means first reducing the time needed to build a new government and second confirming and negotiating the next steps on the EU-IMF program,” Rehn said. “The year 2012 was a missed economic year for Greece, which led to big social costs.”

He said that, while the euro area is better equipped now than it was three years ago to handle any Greek turbulence, that doesn’t make the idea of a Greek departure from the single currency -- a so-called Grexit -- more plausible.

Saying all the main political parties in Greece support its membership of the 19-nation euro, Rehn called on foreign citizens and investors to distinguish between political noise and economic reality.

“I would find it nonsensical to talk about a Grexit in a situation where the worst is over and the country is moving toward a better direction,” he said. “There will be plenty of political shadow-boxing and political theater in the coming weeks and months in Greece, but I trust that citizens and market participants can see through it and realize this is part of the cyclical process of negotiations with Greece.”