The head of an influential German banking federation said on Saturday that private banks would play a role in a new eurozone rescue package for Greece, a participation strongly backed by the German government.
“We will make our contribution,” German federation of private banks head Michael Kemmer told the Neue Osnabruecker Zeitung daily newspaper.
A spokesman for the German Ministry of Finance clarified that discussions with private creditors about their specific role in the package were “ongoing,” but noted there was no clear procedure defining how the process would work.
On Tuesday, Kemmer indicated that German banks want incentives before they agree to take part in the rescue, saying they have 10 billion euros to 20 billion euros (US$14 billion to US$28 billion) invested in the country’s bonds.
The chief economist at the European Central Bank, Juergen Stark, on Friday warned that the private sector participation in a Greek rescue package injected added risk to an already volatile situation.
Stark said he understood the desire of European governments to involve the private sector, but urged debate on whether the strategy was “economically suitable and necessary.”
Greece has debts of some 350 billion euros and needs a second bailout worth more than 100 billion euros after a 110 billion euro bailout by the EU the IMF last year proved insufficient.
Eurozone finance ministers want holders of Greek bonds — primarily banks, insurers and pension funds — to take part, possibly by agreeing to a rollover, whereby investors buy new bonds to replace ones that mature.
In doing so they have to ensure that involvement by private investors is viewed as voluntary, otherwise rating agencies could declare Athens to be in default, something which could have dramatic consequences.
On Friday, Stark urged particular caution on this issue, suggesting that if there were a change in the terms of the debt in a rollover of Greece’s debt that credit agencies would call it a credit event and a default.
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