The Financial Times reported on Monday that European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens.
?People involved in the talks said the package would also include incentives for private holders of Greek debt voluntarily to extend Athens? repayment schedule, as well as another round of austerity measures,? claimed the newspaper without naming its sources.
There is doubt that Greece will be able to return to the financial markets to raise money in March as foreseen in the loan memorandum it signed last year, which means that the IMF would be forbidden from distributing any additional funds. Without the IMF funds, eurozone governments would either be forced to fill the gap or Athens could default.
To ensure the IMF?s continued involvement, a new loan deal would have to be reached by a meeting of EU finance minister on June 20. Sources suggested that an emergency meeting of eurozone finance minister could take place on June 6.
Greece is thought to need up to 70 billion euros on top of the 110 billion it is already due to receive by the end of 2013. But European officials are hoping that about half of the extra funding will come from the sale of state assets and the extension of maturities for bonds held by private investors.
The European Central Bank is opposed to any restructuring of Greek debt that could be considered a ?credit event? ? a change in terms that could technically be ruled a default ? but, according to the FT, a senior European official involved in the talks said ECB objections could be overcome if the rescheduling was structured properly.
But in an interview with the newspaper, Lorenzo Bini Smaghi, and ECB executive board member, said that talk about Greece reneging on debt commitments ?has been very damaging? and suggests ?that investing in the euro area is unsafe.? Even for a country that flouted eurozone fiscal rules for a decade, ?a debt restructuring, or exiting the euro, would be like the death penalty ? which we have abolished in the European Union?, he says.
The ECB has bought about ?45bn in Greek government bonds in the past year but Bini Smaghi says the impact of a default would fall largely on eurozone national central banks, rather than the ECB, and ultimately on taxpayers. ?We care about taxpayers? money and this is why we warn against restructuring. We seem to be the only ones,? he says.
Bini Smaghi added that a Greek restructuring would be nothing like those in Latin America in the 1980s. The Greek situation is ?totally different?, he says. An ?orderly? debt restructuring is ?a fairytale?.