Greece may receive as much as euro 85 billion ($124 billion) in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro region’s debt crisis, according to an Austrian finance ministry official.
Euro zone nations and private investors would contribute 70 per cent of the aid, with the International Monetary Fund offering the rest, Thomas Wieser, head of the ministry’s economic policy and financial markets department, said in Vienna. European Union (EU) finance chiefs would also hold a conference call to free up a euro 12-billion payment overdue from the original rescue.
“I’m certain we now have sufficient consensus to take a decision during the weekend on the fifth transfer of the Greek loan package,” said EU Economic and Monetary Commissioner Olli Rehn Rehn.
Progress on doling out aid to Greece comes after Prime Minister George Papandreou yesterday secured the passage of euro 78 billion of additional budget cuts and revenue measures needed to meet the targets of the original bailout. Greece’s failure to trim the EU’s second-largest deficit pushed bond yields to records, leaving the country unable to sell debt next year as planned. Greek two-year notes led gains by securities from the euro region’s most-indebted countries as speculation about an imminent Greek default eased.
Two-year Greek note yields fell 89 basis points to 26.41 per cent at 12:24 pm in London, according to Bloomberg Bond Trader prices. That yield topped 30 per cent last month on default concerns.
German and French banks, among the biggest holders of Greek debt, have stepped up talks in recent days on a plan to join the new rescue package through rolling over part of their Greek bonds. German banks yesterday agreed to swap Greek bonds maturing through 2014, which amount to about euro 2 billion, into longer-maturity debt, Finance Minister Wolfgang Schaeuble said in Berlin. The country’s so-called bad banks would provide euro 1.2 billion as well, he said.
While German and French officials have signaled a target of as much as euro 30 billion from the rollover, “one can’t say reliably how much the private sector would contribute,” Fekter said. Any involvement has to be voluntary and can’t be allowed to trigger a credit default, she said.
Looming Maturity
At the briefing, Finance Minister Maria Fekter said she expected to discuss the proposals on private investor involvement with her euro region colleagues this week. The call tomorrow aims to approve the release of the fifth installment of aid from last year’s bailout. Greece needs that euro 12-billion payment to meet a euro 6.6-billion bond maturity in August. Deutsche Bank AG Chief Executive Officer Josef Ackermann, at a conference in Berlin, predicted financial companies would contribute to help avert a “meltdown.”
Under a French proposal that Ackermann said also formed the basis of the German negotiations, bondholders would agree to roll over 70 per cent of their debt maturing through mid-2014 into new 30-year Greek bonds with the principal on the new debt guaranteed through Greece investing in zero-coupon bonds of similar maturity. Under a second option, investors would roll over 90 per cent of their debt into new five-year bonds with no guarantee.
The new bailout programme, which should run from mid-2011 for three years, has to be “imagined as a cash-on-delivery agreement,” Wieser said, adding the dates of paying out installments haven’t yet been set.
Quarterly reviews of Greece’s progress by officials of the EU, the IMF and the European Central Bank, that were part of the original package, would continue under the new plan, Fekter said.
“Before every payment, there would be a discussion of the finance ministers to see if the programme is on track and whether the Greeks are still doing their part,” Wieser said. The first payment under the new programme would probably take place in September, and may be of a size similar to the euro 12-billion July instalment, he said.
