As Third Bond Restructuring And Bailout Looms, Stakeholders In Greece Pass The Buck

The dire state of the Greek economy has, over the past few months, been slowly but steadily adding credence to the view that a third bailout for the debt-ravaged nation would be necessary in the near future.

There's only a small problem with that emerging consensus: Key stakeholders are saying they don't want to pay for the next bailout.

On Sunday, European Central Bank Governing Council member Ewald Nowotny said a possible way to cut Greece a break discussed earlier in the week -- by allowing the country to postpone bond repayments or giving outstanding debt a value-killing "haircut" -- was off the books as far as the central bank was concerned.

“For the ECB, forgiving debt isn’t possible, because it would be equivalent to indirect state financing,” Nowotny told journalists in Vienna, according to Bloomberg. “Therefore, the ECB certainly can’t participate in a such action of the public sector.”

Nowotny is only the latest to make that case. Earlier, German Finance Minister Wolfgang Schauble had told a German radio news program that he would not support a plan to impose further losses on central banks, governments and private institutions currently holding Greek bonds, according to the Wall Street Journal.

"We would be tying our hands with such a measure, and it would certainly not be in Greece's interests," Schauble said, making the argument Germany might be legally barred from helping Greece in the future if a haircut was taken now.

On Monday, Steffen Seibert, the chief spokesman for the German government, said a restructuring of Greek sovereign debt was “out of the question.”

Part of the reason why world leaders are coming out so strongly against the proposal to bail out Greece in the same manner as it was rescued in the past is the fact that the Greek government has been unable to meet the very difficult fiscal consolidation conditions that were set as a requirement for the last round of aid. There's also the fact, with foreign holders paring their portfolio of Greek debt since last year, it's mostly central banks and the Greek financial system that is loaded with Hellenic Republic notes. A bailout that imposes loses on those institutions could cause a solvency crisis among Greek banks, defeating the purpose of any action.

Instead, it seems the latest plan being discussed involves having the Greek government borrow funds directly from European governments or the ECB and buy back its outstanding bonds, which are trading below fair value.

But that would end up making Greece more directly in debt to other nations, a privilege for which lenders will likely demand more control of sovereign fiscal function.

Not that Greece is getting much sympathy on that point.

"I firmly believe that, in order to restore confidence in the euro area, countries need to transfer part of their sovereignty to the European level," ECB President Mario Draghi said in an interview with Germany's Der Spiegel published Sunday. "A lot of governments have yet to realize that they lost their national sovereignty a long time ago."