Bloomberg News

EU Ministers Set to Clear Way for Greek Payment, Germany Says

June 17, 2011

June 17 (Bloomberg) -- European finance chiefs are set to clear the way for a pending aid payment to Greece after Germany signaled a retreat on its demand to extend Greek debt maturities, a German deputy finance minister said.

An emergency meeting in Luxembourg June 19 will probably “find an agreement that the IMF and the Europeans can pay out the next tranche to Greece, given that the key ingredients of the next program are known,” Germany’s Joerg Asmussen said in a Bloomberg Television interview today. “There is a regular euro zone finance ministers’ meeting on the 11th of July and I think there the program should be finalized.”

Asmussen, Wolfgang Schaeuble’s deputy for economic, financial and European affairs, spoke from Brussels as Chancellor Angel Merkel indicated that Germany was dropping an insistence that bondholders be forced to shoulder a “substantial” share of a Greek rescue. She said she will work with the European Central Bank to avoid disrupting markets.

Schaeuble’s demands that bond maturities be extended by seven years met ECB resistance and credit-rating company warnings that the move was tantamount to default, stalling efforts to craft an aid package this week.

The signs of flexibility from Germany sent the euro up by as much as 0.7 percent to $1.43 and boosted European stocks and Greek bonds.

Merkel’s government wants the private-sector involvement to be “voluntary, substantial, reliable and quantifiable,” Asmussen said. Merkel and Schaeuble are “on the same page” and working with the ECB to make it happen, he said.

IMF Loan

Greece’s immediate concern is to obtain 8.7 billion euros from Europe and 3.3 billion euros from the International Monetary Fund in July, promised as part of last year’s aid package to stave off the euro area’s first default.

European estimates put Greece’s 2012-14 financing gap at as much as 170 billion euros. It would be filled by about 45 billion euros of loans, plus around 57 billion euros in unspent aid from the 2010 bailout, roughly 30 billion euros in asset- sale proceeds and about 30 billion euros from creditors.

A year after the bailout that aimed to stop the spread of the debt crisis, Greece remains mired in a third year of recession, shut out of financial markets and saddled with the biggest debt load in the euro’s history.

The extra yield that investors demand to hold 10-year Greek government bonds relative to German bunds of similar maturity reached a record 15.43 percentage points today. The country’s two-year securities yield about 30 percent.

‘Default Event’

“What we need to provide as European finance ministers is an overall package” that includes “fiscal adjustment in Greece, with reliable privatization efforts in Greece and then private sector involvement that satisfies the condition that it’s voluntary, that we’re not creating a default event, but that at the same time is so substantial that we can reduce the official financing need for Greece,” said Asmussen.

Greek Prime Minister George Papandreou reshuffled his cabinet today, replacing Finance Minister George Papaconstantinou with Evangelos Venizelos. The premier will seek a confidence vote in parliament, expected next week, as he battles to get his own lawmakers to pass further austerity measures demanded by the European Union, ECB and International Monetary Fund.

Pressure on euro-area governments to craft a rescue plan intensified this week after Standard & Poor’s slapped Greece with the world’s lowest credit rating. Moody’s placed the ratings of BNP Paribas, France’s biggest bank, and local rivals Societe Generale SA and Credit Agricole under reviews that will focus on their holdings of Greek public and private debt.

Merkel and French President Nicolas Sarkozy met in Berlin as pressure increased to reach an accord on a rescue package.

“If technical details remain open to get this operational, this can then be worked out until September,” Asmussen said. “The main work has to be done until mid-July to give assurance to the markets before the summer break in Europe.”

--With assistance from Gregory Viscusi in Paris and James G. Neuger in Brussels. Editors: James Hertling

To contact the reporters on this story: Rainer Buergin at rbuergin1@bloomberg.net; Francine Lacqua in London at flacqua@bloomberg.net.

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net


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