The US is pressing euro-area countries to agree to an overhaul of Greece’s debt to give private-sector investors confidence that the nation’s borrowing burden is sustainable, a US Treasury official said.
Europe needs to take action to lower Greece’s overall debt levels, said the official, who asked not to be identified because discussions are in progress. Participation by the European Bank for Reconstruction and Development would also be helpful to restore financial stability in Greece, the official said. The EBRD, which was created to help central and eastern European countries after the Cold War, could lend staff and contribute technical expertise to help the Greek banking system get on firmer footing, according to the official.
Lowering interest rates and extending maturities can ease Greece’s debt burden, and the US and International Monetary Fund have stopped short of calling for writing down the principal of the loans. Many euro-area nations have indicated that would be a “red line,” while indicating they might agree to better servicing terms.
The US call to reduce Greece’s debt burden echoes the position taken by the IMF, which has said it won’t offer new money to Greece unless the euro area commits to a formal debt operation. The US is the largest shareholder in the Washington-based IMF, which lends to countries that run into balance-of-payments troubles.
Germany and other creditor nations say bringing the IMF on board is an essential element of the 86-billion-euro ($95 billion) bailout that the currency bloc approved in August.
The bailout loans Greece has amassed over its three rescues are the focus in the debt-relief talks, since Greece’s private- sector debt was already restructured in early 2012.
Greece’s borrowing outlook gained a boost over the weekend, when the European Central Bank found that capital shortfalls at the four biggest banks won’t require all of the money set aside for financial-sector assistance within the aid program. The banks need 14.4 billion euros, of which 10 billion euros is expected to come from the rescue coffers.
The European Stability Mechanism said on Saturday that this means Greece won’t draw down the full bailout amount, since it doesn’t appear to need another 15 billion euros that had been earmarked for bank aid if needed. The banks are expected to raise 4.4 billion euros from private-sector sources.
Greek government officials say the EBRD, which took bank stakes in Cyprus, has indicated its willingness to take part in the Greek banks’ search for fresh capital.
The EBRD is actively looking at the recapitalization plans of the Greek banks with a view to determining whether we can play a role in the process over the next few weeks, said Axel Reiserer, a spokesman for the London-based development bank.
The EBRD has recently established a presence in Greece and is now building relationships and exploring options for investments, Reiserer said. The EBRD handles project finance and does not provide budget support or financial aid.