Eurogroup discusses options for Greece

Eurozone ministers meet in Brussels on Tuesday in a bid to resolve a damaging row over the extent to which banks and other private investors may be forced to contribute to a second Greece bailout.

Finance ministers from the 17-member Eurogroup starts talks on Tuesday afternoon, before ministers from the other 10 European Union states join in for a session formally dedicated to closer cross-border economic policy coordination.

But nine days from a crunch summit of EU leaders, at which Athens is looking for clear backing for a second multi-billion-euro bailout in just over a year, the precise shape of the financial aid for Greece remains unclear.

Belgian finance minister Didier Reynders, invariably a reliable guide during negotiations, said at the weekend it should run to more than 80 billion euros, 25 billion of which could be funded by the private sector,

The remainder, diplomats have said, would come through loans from eurozone partners and the International Monetary Fund, and receipts from Greek state sell-offs, another part of the equation that remains uncertain.

EU economy commissioner Olli Rehn told German daily Sueddeutsche Zeitung on Tuesday that «we are not as far from reaching a solution as some think.”

He stressed that the European Commission is still working on a plan which would see banks agree to «hold onto their bonds for longer, and on a voluntary basis.”

The German government wants private investors to pick up more of the tab after last year’s 110-billion-euro financial rescue was mounted solely at taxpayer expense.

The European Central Bank is deeply uneasy with that idea. It is sitting on a pile of Greek debt, either bought to help unfreeze credit markets accepted as collateral for lending to private banks.

Any move towards a «rescheduling» or «reprofiling» of Greece’s 350-billion-euro debt mountain risks unleashing what is termed «a credit event» or de facto default, which the ECB fears could unleash chaos even beyond Europe.

A credit event is considered to be a modification of initial borrowing conditions and usually triggers downgrades if not a default rating by credit agencies.

Standard and Poor’s slashed its credit rating for Greece on Monday by three notches, saying that it saw it as «increasingly likely» that the deal being hammered out would under its criteria constitute a default.

The head of the German central bank said in an article also for Sueddeutsche Zeitung on Tuesday that while there was nothing to object to in a «voluntary extension» of Greek maturities, an «imposed» solution would carry «greater risks.”

Bank of France Governor Christian Noyer warned on Tuesday that the eurozone risks having to finance all of Greece’s economy if it forces a modification of Athen’s debt and the country defaults.

France has been a leading backer of the ECB, and Noyer said: «If a solution can be found that avoids the risk of a default, that would be acceptable to us.

“If one can’t be found and you touch the debt anyway and provoke a default or a ‘credit event,’ then you had better be prepared to finance the entire Greek economy,» he added.

The eurozone is locked in a race against time after EU and IMF experts warned that the latest 12 billion euros of bailout loans needed in July can only realistically be paid out if a new longer-term financing deal is sealed at the June 23-24 summit of EU leaders. [AFP]

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