Bloomberg News

EU Split Over Push for Bigger Bank Haircut in Greek Rescue

September 28, 2011

(Updates with comments from IIF’s Dallara in 13th and 14th paragraphs. See EXT4 <GO> for more on the European debt crisis.)

Sept. 28 (Bloomberg) -- The European Commission is resisting a push to impose bigger writedowns on banks’ holdings of Greek government debt than those agreed on at a July 21 summit, a European official said.

The commission, the European Union’s executive body, opposes ideas being floated by some government officials to get banks to accept bigger so-called haircuts and doesn’t want to have talks about any such attempt, the official said on condition of anonymity because the deliberations are private. Germany and the Netherlands are leading a drive by as many as seven euro-area countries for more private-sector involvement in the second Greek package, the Financial Times reported today.

The German Finance Ministry said it wasn’t “putting pressure on anybody” over haircuts after Chancellor Angela Merkel signaled in an interview with Greek television broadcast today that policy makers may review Greece’s second bailout depending on the results of an international progress report.

Experts from the commission, the European Central Bank and the International Monetary Fund will return to Athens tomorrow as officials race to put in place a package of measures that will ring-fence Greece. The experts will resume their review of whether Greece has met the conditions for the next slice of the initial, 110 billion-euro ($150 billion) bailout package engineered last year.

Troika Findings

Euro-area finance ministers will hold an extra meeting on Greece in October amid international concern that a default could plunge the global economy into a recession. That meeting is likely to focus on the 8 billion-euro aid installment from the first package, without tackling questions about the second bailout and broader framework that was agreed in July.

“We must now await what the troika, that is the expert mission, finds out and tells us: do we need to renegotiate or don’t we need to renegotiate?” Merkel said in the interview with Greek NET television, according to a transcript.

The Financial Times Deutschland reported earlier today that euro members have started talks on renegotiating the second bailout. Banks and insurance companies may have to increase their contribution to the rescue package as Greece’s economy has deteriorated, the German newspaper said, citing unidentified people familiar with the situation.

Premature

“It’s way too early to talk about this,” Bertrand Benoit, a German Finance Ministry spokesman, said by phone, denying that Germany is behind the efforts. “We want to take everything one step at a time and the priority now is the sixth tranche” of Greece’s current aid package.

Bondholders will take a broader role in the second Greek package, a 159 billion-euro bailout that includes more public funding, a debt swap, bond buybacks and broad changes to the terms of the EU’s main rescue fund.

The package must be ratified by the euro area’s member states and is making its way through the region’s legislatures. Finland today became the ninth country to ratify the package designed by EU leaders to prevent the region’s debt crisis from spreading. The measures must be approved by all 17 countries that share the euro.

Bondholders are in the midst of consultation with authorities on the debt swap, which aims to include 90 percent of eligible bonds and contribute at least 50 billion euros to the rescue effort.

“Participation is firmly building,” Charles Dallara, managing director of the Institute of International Finance, said in an interview on CNBC today. The IIF is a Washington- based trade group that has been coordinating the debt swap and helping design its technical details.

“I’m sure there are a few authorities in Europe who would like to see a bigger contribution for the private sector, but the overwhelming majority in Europe are focused on moving this thing through the parliaments,” Dallara said.

--With assistance from Tony Czuczka in Berlin and Maria Petrakis in Athens. Editors: Alan Crawford, John Fraher

To contact the reporter on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net

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


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