Any new haircut of Greece's debt should only come as a reward for Athens implementing the reforms it has signed up to, European Central Bank Governing Council member Jens Weidmann said on Friday.
A row between euro zone governments and the International Monetary Fund over how to make Greece's giant debt mountain manageable is holding up the release of 31 billion euros ($40 billion) in emergency loans needed to keep the country afloat.
IMF officials have argued that some writedown for euro zone governments is necessary to make Greece solvent but Germany, the biggest contributor to the bloc's bailout funds, has repeatedly rejected the idea of taking a loss on holdings of Greek debt, saying it would be illegal.
I regard as an open question whether the need for a haircut in debt arises, Weidmann, who also heads the German Bundesbank, said at an event organised by the newspaper Sueddeutsche Zeitung in Berlin.
A haircut would only make sense as a reward for completing a reform package that puts the country's finances on a sustainable basis, he said.
Once that was achieved, the country could then see its debt load cut and return to markets for funding instead of having to rely on bailout funds.
One can pose the question whether the leap of faith that you give (with a haircut) sets the right incentives or whether it would not make sense to set a haircut, which one will need in the end to regain capital market access, as a perspective for when the reforms... have been implemented, Weidmann said.
Banks, insurers and other private investors holding about 206 billion euros of Greek bonds took big losses on the nominal value of their securities earlier this year as part of an earlier bailout, but the ECB did not participate.
Weidmann stressed the importance of the right timing for another such move, saying now would be too soon.
I can do a debt writedown today (but) if the budget, the deficit are not sustainable, I will be in the same situation again in 10 years time as today and that