Germany steps up pressure on Greek restructuring

A German government adviser said on Tuesday that a restructuring of Greek debt was inevitable, raising pressure on Athens to seek a solution to the debt woes that are shaking investor confidence in the eurozone. Greek borrowing costs rose and foreign demand shrank in the country's first debt auction since speculation of a debt restructuring flared last week following comments from Germany's finance minister.
After a weekend election in Finland in which an anti-euro party scored strong gains, the head of the party that is likely to lead the next government sent reassuring signals that the strength of the anti-euro True Finns would not derail a pending bailout for Portugal.
Financial markets settled after a tumultuous session to start the week, clouded by growing fears of a Greek restructuring. The euro pushed back up towards $1.43 after shedding nearly two cents on Monday in its worst one-day fall in over two months.
But the bonds of so-called peripheral eurozone countries like Greece, Portugal and Spain, all struggling with high debt and poor economies, remained under pressure, with yields hovering just below euro-era highs. Clemens Fuest, who chairs the German finance ministry's technical advisory committee, said Greece's extremely weak balance sheet meant a restructuring was inevitable. "One must recognise the realities - I am expecting a haircut," Fuest told Reuters.
Outside of Berlin, officials continue to rule out a restructuring, with European Central Bank Executive Board member Juergen Stark warning in a Portuguese newspaper interview about the costs of such a move for Greek banks. "It is a very firm denial from our side," a spokeswoman for the European Commission said after a Greek newspaper quoted a senior official from the EU executive as saying Athens had accepted a restructuring was unavoidable.
Despite the repeated denials, European officials appear headed towards some form of "voluntary" restructuring in which bond holders would agree to roll over their holdings next year or extend their maturities, possibly in combination with buying of Greek bonds on the primary market by the EU's rescue fund.