CORRECT: Germany Drafts Deal On Private Sector Role In Greek Aid
30 June 2011 - 11:47PM
Dow Jones News
Germany's financial sector Thursday reached a draft agreement
with the German government on how private bond investors will
participate in plans to extend a new aid package to Greece.
The agreement, which follows a French plan reached last weekend,
comes in time for euro-zone finance ministers discuss the aid
program at a meeting in Brussels Sunday.
German finance minister Wolfgang Schaeuble will make a statement
at 1300 GMT about the talks.
One person familiar with the matter said Thursday that a draft
agreement had been reached but that it was still open as to which
maturities of Greek sovereign debt will be rolled over under the
German plan.
A second person said the debt rolled over by German financial
firms could be a low single-digit-billion euro amount for Greek
debt maturing between now and 2014. If it involves debt maturing
between now and 2020, the volume would be a mid-digit-billion euro
amount. Both people said the plan could still change as
negotiations with German banks and insurers continue. Earlier this
week, a person familiar with the matter put the rollover figure at
around EUR7 billion.
Deutsche Bank AG (DB) Chief Executive Josef Ackermann and
Commerzbank AG (CBK.XE) CEO Martin Blessing told a conference in
Berlin Wednesday that the German plan will use the one proposed by
France as a blueprint, but that it requires adjustments for the
German financial sector. Such adjustments include the amount of
time Greek bonds will be extended for. It must also consider how
rating agencies and accounting firms will react. German financial
firms have demanded assurances that rating agencies and accounting
firms won't consider the arrangement to be a default.
German banks hold more Greek sovereign debt than banks from any
country outside Greece, but French banks have more overall exposure
to Greece because two of them own Greek banks.
Under the proposal by French banks and insurers, the maturity of
Greek bonds would be extended to give the highly indebted country
more financial breathing space.
The main option in the French proposal would be for holders of
bonds to agree to reinvest half the proceeds of Greek government
bonds that mature in the next three years into new 30-year Greek
sovereign debt, with a base interest rate of 5.5%, which would rise
if the Greek economy grows. The ceiling interest rate would be
8%.
The French plan proposes that a further 20% would be set aside
to buy top-rated zero-coupon bonds with a 30-year maturity aimed at
guaranteeing the capital repayment.
The assets would be managed by a special-purpose vehicle,
allowing investors to remove the Greek bonds from their balance
sheets.
European governments want the broad outline of a proposal for
euro-zone private-sector participation in a Greek rescue package to
be provided to the region's finance ministers when they meet in
Brussels Sunday.
A new rescue package was also conditional on the Greek
parliament approving austerity measures proposed by the government.
The Greek parliament passed the reforms Wednesday and will vote on
new legislation for the measures Thursday. The progress of the
austerity plan has come against a backdrop of major public protests
and rioting against them in Greece.
Greece has EUR64 billion of bonds maturing by 2014. It will need
more aid on top of the EUR110 billion program it received from its
euro-zone partners and the International Monetary Fund to meet
future commitments.
Belgian Finance Minister Didier Reynders Thursday noted that
progress on talks between European governments and private sector
creditors is pushing forward a plan to solve Greece's most urgent
debt problems.
"We try in different capital cities to discuss with banks,
insurance companies and pension funds to manage it on a voluntary
basis," Reynders said in Paris. "We've seen some progress in the
private sector."
Reynders also said that although it is possible that the
Eurogroup meeting on Sunday won't iron out all the plan's details,
it may give the go-ahead for the next tranche of Greek aid worth
between EUR11 billion and EUR12 billion to be paid by mid-July.
European Central Bank President Jean-Claude Trichet Thursday
said it is in "Greece's interest" and in the interest of all of its
neighbors to find a solution to the country's debt crisis. "I hope
we can conduct this debate in a more serious way than hitherto," he
said.
He stressed that he is against any involvement of the private
sector in a "debt action" for Greece that isn't purely voluntary.
He said that adjustment for Greece "is the first priority," adding
that privatization is important for the embattled Hellenic
Republic.
ECB Governing Council Member Ewald Nowotny called the French
proposal on private sector involvement "a very, very interesting
step for some countries." However it is important that there be a
common European solution, he said, adding that discussions were
taking place. He also said it is important to implement the
measures quickly, especially privatization.
-By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500;
ulrike.dauer@dowjones.com