Bloomberg News

Bondholder Role in Greek Bailout Needs ECB Assent, Juncker Says

June 11, 2011

June 11 (Bloomberg) -- A bailout for Greece must include “voluntary” investor participation and meet the approval of central bankers, Luxembourg’s Jean-Claude Juncker said, seeking to narrow a dispute over the second Greek rescue in two years.

“There must be a participation of private creditors,” Juncker, who leads the group of euro-area finance ministers, said in an interview on Radio Berlin-Brandenburg today. “It must be voluntary.”

Luxembourg’s prime minister is trying to bridge the gap between German Finance Minister Wolfgang Schaeuble, who has called for Greek bondholders to extend the maturities of their debt by seven years, and European Central Bank President Jean- Claude Trichet, who says imposing losses on creditors would be akin to a default. European officials are racing to find a plan to stem Greece’s debt crisis by June 24 while sharing the cost of a new rescue with bondholders.

“We cannot push through private investor participation without, or against, the ECB,” Juncker said. “A default would mean the ECB would have to end its accompanying programs. A default would mean we have reached the end of the line.”

Schaeuble, in a June 6 letter to Trichet and fellow euro finance ministers, called the seven-year extension to give Greece more time to cut its debt and budget deficit.

Governments aim to reach an agreement on a new aid package by a European Union summit on June 23-24. The IMF has threatened to withhold its share of what remains of Greece’s original 110 billion-euro ($158 billion) bailout until governments guarantee that the country’s financing needs for the next 12 months are covered. The IMF was due to turn over 3.3 billion euros this month.

Default Warning

“We cannot accept an uncontrolled bankruptcy of a country,” German Chancellor Angela Merkel said today in her weekly video message. Such an event may endanger the recovery of Germany’s economy, she said.

European governments and the IMF would lend as much as an extra 45 billion euros to Greece under a new bailout plan that also includes roughly 30 billion euros in asset-sale proceeds and about 30 billion euros in rollovers by creditors, two people with direct knowledge of the talks said earlier this week.

While a debt rollover has been gaining support among EU officials, credit analysts at Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have indicated that pressure on private investors to participate would prompt a default rating on Greek debt, a view echoed by European Central Bank Governing Council member Nout Wellink today.

“The desire to involve private investors is understandable,” Wellink said on Dutch broadcaster Radio 1. “We do note that fulfilling that desire by a non-voluntary contribution would lead to a default situation.”

--Editors: Marthe Fourcade, Dick Schumacher.

To contact the reporter on this story: Richard Weiss in Frankfurt at

To contact the editor responsible for this story: Dick Schumacher at

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