GREEK BAILOUT:THE IMF has signalled it would be comfortable with a higher or lower "haircut" for private bondholders in the second Greek bailout, declining to take sides in renewed hostilities between the European Central Bank and euro zone finance ministers.

The ministers opened the door three nights ago to bigger losses for Greek creditors in the country’s second rescue, but the International Monetary Fund’s top official in Europe suggested that ECB chief Jean-Claude Trichet is pushing for a smaller haircut to contain the turmoil in markets.

Antonio Borges, director of the IMF’s European division, said the figures underpinning the second bailout agreed in July must now be reworked as a result of Greece’s deepening recession.

“The figures that were listed in the summer were based on assumptions that have become outdated very quickly . . . In the same way, it will also lead to a different analysis of the private sector involvement,” he told reporters in Brussels.

“We at the IMF could operate easily on the basis of a bigger or lower haircut on the credits of the international investors . . . The Europeans have chosen in July to provide very good terms for the banking sector to fund Greece as much as was needed to compensate for that. We respect that choice.”

The July deal assumed a 21 per cent loss taken voluntarily by Greek creditors. While debate in Europe centres on pressure in Germany to increase the loss to 50 per cent, Mr Borges said the ECB was leaning in the opposite direction.

“If Europeans say we want a smaller haircut because we’re very concerned about confidence throughout Europe . . . we can very well live with that,” he said.

“This is in particular the position of the president of the European Central Bank, who is very much concerned about confidence in the financial sector and recommends against any kind of substantial haircut.”

Minister for Finance Michael Noonan said yesterday that he did not expect Greece to default.