Greece, EU dance around issue of default

There was a difference of opinion at the European level on Tuesday over whether members of the eurozone are prepared to allow Greece to default, a possibility that Athens still rejects, following talks between finance ministers.

A lengthy meeting of ministers on Monday failed to conclude on a common position to tackle Greece?s debt crisis but there appeared to be an acceptance that the private sector would have to be involved. Among the ideas that were discussed were longer debt maturities for Greece, lower rates and the possibility of Greek bonds being bought back, possibly through the European Financial Stability Facility (EFSF).

Dutch Finance Minister Jan Kees de Jager said on Tuesday that the direction of Monday?s talks means that a ?selective default? for Greece is no longer off the table. ?We have managed to break the knot of a contradictory statement saying that you want substantial private sector involvement and, on the other hand, you want to avoid a selective default,? de Jager said.

However, this interpretation was rejected by some of the other ministers as well as Greece?s Evangelos Venizelos, who said that it was not yet clear how the private sector would be involved in helping Greece overcome its debt problems.

?European Central Bank President Jean-Claude Trichet told me that there are 36 different scenarios being examined with regard to private sector involvement,? Venizelos told journalists in Athens on Tuesday. ?Selective default is not a real event, it is an assessment. We must not convert a perception into reality, into a self-fulfilling prophecy.?

In the meantime, Athens will push for the EU and the International Monetary Fund to arrive at a decision about a second bailout. Government sources said Greece would need to receive its next loan installment by September 14.

IMF Managing Director Christine Lagarde expressed support for a more comprehensive solution to Greece?s debt problems. ?We welcome the [Eurogroup] ministers? recognition of the need for a broader, more forward-looking response to assist Greece in its efforts to restore growth and competitiveness and to bolster debt sustainability,? she said. ?The IMF will continue to work closely with Greece and European partners to support these objectives.?

Papandreou will have the opportunity to press his EU counterparts at an emergency summit on Friday. He will follow this up with trips to visit German Chancellor Angela Merkel and French President Nicolas Sarkozy. Papandreou wrote to the head of the Eurogroup, Jean-Claude Juncker, to call for a more comprehensive solution to Greece?s debt problems but also the ?contagion of doubt? threatening the euro. ?There is no room for indecision and mistakes… such as allowing cacophony to substitute for a common agenda and create more panic than security,? he wrote.