On the day that European Union finance ministers approved a 78 billion euros ($110 billon) rescue programme for Portugal, Ms Merkel declared that outright debt restructuring before 2013 – when a permanent bail-out fund is in place – would be “incredibly” damaging to the eurozone as a whole.

“It would raise incredible doubts about our credibility if we simply were to change the rules in the middle of the first programme,” causing a flight of investors in government bonds from the euro zone, she told Berlin students.

Private creditors should not be drawn into potential debt-rescheduling until the 500 billion euros European stability mechanism was established in 2013, Ms Merkel argued.

Her views are at odds with those of many in the German parliament – and German economists – who say Greek debt restructuring is inevitable. The chancellor conceded, however, that some form of voluntary agreement of creditors might be possible to ease debt problems in Greece.

At a meeting in Brussels last night, finance ministers pressed Greece to accelerate its privatisation programme and take more steps to shore up finances.

Jean-Claude Juncker, Luxembourg prime minister and head of the eurozone group of finance ministers, said governments might consider adjusting the maturities of some Greek bonds – a process known as reprofiling – but only after Athens demonstrated more progress at tackling its fiscal deficit and ramping up privatisations.

In addition to discussing the eurozone crisis, ministers designated Italy’s Mario Draghi as successor to Jean-Claude Trichet, the ECB president whose term ends in October.

Ministers sought to play down the absence of Dominique Strauss-Kahn, head of the IMF. Didier Reynders, Belgian finance minister, said: “We are going to work on Greece and on Portugal in exactly the same manner as if Dominique Strauss-Kahn were here.”

Privately, however, speculation had begun about who might replace a man who has been central in Europe’s response to the debt crisis. “His personal contribution was important right from the beginning,” one diplomat said. “He was a big asset.”

( Source: financial times )