A 100 percent 'haircut' - or writedown of Greek debt - would be needed to reduce Greece's debts to a manageable level, a senior analyst told CNBC Tuesday.
"Haircuts would not work because you have around one third of the debt being owned by officials like the IMF and European loans so you cannot haircut that and also Greek banks would need to be recapitalized," Stephane Deo, head of European economic research at UBS told CNBC.
He added that a 50 percent haircut would translate only to a reduction in actual debt of 20 percent or so. So to acheive an actual debt reduction of 50 percent you would need to implement a haircut of 100 percent - to repudiate its debts totally.
Deo said the only real solution to the problem is to have much bigger private sector involvement.
"A bigger PSI (private sector involvement) involvement is needed where you reduce the interest rate and you extend the duration of the debt.
You don't do a haircut but you restructure the debt much more voluntarily than what has already been proposed," Deo added.
An EU summit planned for this weekend had been seen as the one which would deliver a decisive plan of action to resolving the debt crisis plaguing the euro zone.
However, tempering any overly optimistic reactions by markets for a quick fix, Germany's finance minister Wolfgang Schaeuble said on Monday that while a detailed plan would be adopted it was wrong to expect a miraculous solution to the problem.
He warned that the issue of contagion remained a prominent threat to the region.
More:
http://www.cnbc.com//id/44941628
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