German Chancellor Angela Merkel called on Sunday for private investors to make a major contribution to bailing out Greece, as pressure rose for radical action to cut the country’s debt burden.
Officials proposed a range of schemes for Europe’s bailout fund, the European Financial Stability Facility (EFCF), to finance a buy-back or a swap in which private owners of Greek government bonds — banks, insurers and other investors — would accept cuts in the face value of their holdings.
European Central Bank executive board member Lorenzo Bini Smaghi suggested the EFSF be allowed to provide funds for a buy-back of bonds from the market, where prices have in some cases fallen 50 percent from levels at which the debt was issued.
Wolfgang Franz, head of Germany’s “wise men” economic advisers to the government, said the huge size of Greece’s 340 billion euro (US$480 billion) debt pile meant it was “inevitable and justified” for the private sector to accept losses.
“One possibility would be that the current EFSF euro rescue mechanism swaps — at a significant discount — Greek bonds into bonds it issues and guarantees,” Franz was quoted as telling Focus magazine over the weekend.
Alarmed by the spread of market jitters over Greece to Italy and Spain, where bond yields have surged in the past 10 days, European governments are struggling to put together a second bailout of Greece that would supplement a 110 billion euro rescue launched in May last year.
Germany is insisting private investors be involved in the second bailout and Merkel said on Sunday that if they did not voluntarily agree to a major contribution now, they might eventually be forced into a more costly solution to the crisis.
“The more we can involve private creditors now on a voluntary basis, the less likely it is that we will have to take next steps,” Merkel told public broadcaster ARD without elaborating on what those steps might be.
Three weeks of talks between European officials and the private sector have failed to reach a deal on the second bailout of Greece, but the lobby group representing commercial banks said on Sunday that some progress had been made.
“Progress has been made and the discussions are continuing,” the Institute of International Finance said in a brief statement.
It said the talks were focusing on “several options related to Greece’s financing needs and longer-term debt sustainability.”
Last week, European Council President Herman Van Rompuy announced that eurozone leaders would hold a summit in Brussels on Thursday to discuss the rescue of Greece.
However, Merkel, while describing the summit as “urgently necessary,” said she would only attend if lower-ranking officials had already prepared a clear rescue plan.
“I will only go there if there is a result,” she said.
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