Greece will reschedule debt, says Vince Cable

Business Secretary Vince Cable has become the first Cabinet minister to express a belief that Greece will have to reschedule its debts.

Mr Cable said the move would be best for the eurozone, insisting that merely forcing the country to cut spending further would not work.

"What they are going to have to do is to have a rescheduling of their debt and it can be done in a soft way or a hard way, and that's what the current debate is about," he told the Guardian.

"You can't just deal with this by cutting, cutting, cutting - it's wrong, and it does not work. Attacking the debt, and dealing with it in a more pragmatic way, is the way out of this.

The Liberal Democrat described the hard way as a "straight default", adding: "I think in practice what will happen - people are already discussing this - is a negotiated rescheduling.

"It isn't an easy way out. I was quite involved in the Latin American debt crisis in the 80s, writing about it, and what happened there was that the countries did reschedule their debts - and it was the best option, or the least worst option.

"You lose quite a lot in terms of your capacity to borrow in markets, so it's not an easy option - but given that all the other options are terrible, I'm sure that's what will happen."

He said German resistance to a default or a rescheduling was based on a fear that the German banks were exposed to the Greek debt.

Mr Cable said he did not think the idea of Greece "leaving the eurozone is really an option, and I don't sense that anyone in Greece or anywhere else thinks that it is".

"Quite apart from the psychological impact, a very practical problem is that a lot of their debt is denominated in foreign currency anyway - dollars or whatever - so you don't escape from that by leaving the eurozone," he added.

Mr Cable predicted that the difficulties could have the effect of cementing the eurozone, rather than breaking it up.

"The eurozone is not a federal state, but it probably will have the effect of bringing them together more politically, as a way of managing the crisis," he said.

"I am just guessing, but I would be surprised if the eurozone doesn't survive."