German banks prepared to help Greek bailout

AP News
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Posted: Jun 30, 2011 1:00 PM
German banks prepared to help Greek bailout

Germany's banks are prepared to contribute to a second rescue package for Greece, taking a proposal drawn up in France as a basis, officials said Thursday.

Finance Minister Wolfgang Schaeuble indicated that some euro3.2 billion ($4.6 billion) in debt that is due for repayment by 2014 could be rolled over, though details have yet to be finalized.

Germany's government has pressed hard for a voluntary private-sector contribution due to increasing reluctance among the public _ and particularly among its own lawmakers _ to pledge more taxpayer money to rescue Greece. A second rescue package for Greece is expected to be discussed this weekend.

"I am glad that the representatives of the German finance industry have said they are prepared to participate in a second aid program for Greece" within a wider European deal, Schaeuble said after meeting senior bankers.

German commercial banks currently have some euro10 billion ($14.8 billion) tied up in Greek bonds _ but more than half of that isn't due for repayment until after 2020, according to a joint statement released after Thursday's meeting.

Schaeuble said that banks were prepared, "within the framework of a concept that has yet to be worked out in detail, to make available again for financing Greece" some euro2 billion invested in bonds that expire by 2014.

In addition, he said, government-backed "bad banks" that hold soured assets of some banks hit by the financial crisis will be asked to contribute. They hold another euro1.2 billion in debt due by 2014 that could be rolled over.

Schaeuble did not say under what conditions the rollover would happen _ details likely to be key to avoiding a negative reaction from rating agencies, which the European Central Bank warns could trigger new instability in markets.

"The real question is not the headline number (of how much debt the banks are prepared to roll over) but at what terms they are doing that," said Sony Kapoor, managing director of Re-Define, a think-tank that lobbies for financial sector reform.

The French plan, for instance, suggests some of the money banks receive when their current Greek bonds expire should be invested in a separate fund, which could act as collateral for any rolled over Greek bonds.

Still, for the German government, "being able to say that (there is private sector involvement) is far more important than any detail," said Kapoor.

Under the French plan, banks would roll over the bulk of their holdings in Greek public debt, possibly for a period of 30 years.

It's unclear exactly how big contributions from French banks would be, though a paper drawn up by the French banking federation envisions it being part of a wider European plan that would bring in a total of euro30 billion for Greece over the next three years.

Kapoor said that although the German banks' contribution is not very big, reaching the targeted euro30 billion figure "is still possible" since Greek banks _ which are the biggest holders of the country's government bonds _ are likely to agree to a rollover as well.

Josef Ackermann, the chief executive of Deutsche Bank AG, Germany's biggest bank, said "We are convinced that Greece must continue to be helped."

"We are taking the French model as a basis, but building in modifications," Ackermann added.

He didn't give details of the changes that might be made, but said that "we are making good progress, and we are all confident that we will find a satisfactory solution."

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Gabriele Steinhauser contributed from Brussels.