Two German government advisers see a debt restructuring by Greece as inevitable while two of the overborrowed country's ministers continued to rule it out in newspaper interviews on Saturday.
Mounting fears that Greece will have to restructure a debt mountain expected to reach 340 billion euros this year, roughly one and a half times its output, have pummeled Greek bonds, driving yield spreads over German bunds to new record highs.
For me restructuring is the only road to take, for Greece to feel some relief and for creditors to contribute to the solution of the Greek problem, Lars Feld, one of the five wise men who advise the German government on economic policy, told To Vima newspaper in an interview.
His view echoed that of Clemens Fuest, who chairs the German finance ministry's technical advisory committee. He told Greek paper Realnews the country must restructure its debt no later than April 2013.
I don't think Greece can repay its debt without huge help from abroad, more than what one could reasonably expect. If there is no restructuring, uncertainty over the future of Greece's economy will delay its growth, Fuest said.
He said European Union leaders had started to prepare for such an eventuality. They do not discuss a Greek debt restructuring openly because this would cause bigger uncertainty and speculation in the markets, he was quoted as saying.
Feld said the reason he favors restructuring, despite the European Central Bank's firm opposition, is because austerity to stabilize Greece's economy would kill its growth prospects, with people less willing to accept belt-tightening for many years if they cannot see light at the end of the tunnel.
He said the ECB stands against restructuring because it worries markets may see it spreading to other euro zone periphery countries troubled by debt.
The fear that markets will say that if Greece restructures today, tomorrow it will be Ireland, Portugal and Spain and so on must be seriously taken into account, Feld told the paper. The question that follows is how can we contain the Greek restructuring to Greece only.
European Central Bank Executive Board members Juergen Stark and Lorenzo Bini-Smaghi have both warned against such a step, saying it would hammer the Greek banking system and damage Europe's credibility.
Feld said he would like to see the ECB change its stance, calming markets down with a smart restructuring -- one that would block the risk of euro zone contagion.
If the ECB intervenes as an intermediator between the Greek state and its creditors and achieves a lengthening of repayment, this would be a significant gain. Restructuring does not necessarily mean default, he said.
Meanwhile, Greece's official line that restructuring is not on the table was reiterated by two ministers in newspaper interviews, both saying the government is focused on applying a three-year economic plan it agreed with the EU and the IMF under a 110 billion euro bailout last May.
Greece and the European Union have ruled out the prospect of a debt restructuring. Such a development would be negative for the euro zone and the Greek economy, Development Minister Michalis Chrysochoidis told Ethnos newspaper.
And Deputy Finance Minister Philippos Sachinidis told Eleftherotypia newspaper debt restructuring involving a haircut would send pension funds and banks into an abyss.
(Editing by Catherine Evans)