Germany Seeks to Extend Greek Debt Maturities by 7 Years in Clash With ECB

Bloomberg
June 8, 2011

German Finance Minister Wolfgang Schaeuble said bondholders must contribute a “substantial” share of a second aid package for Greece, proposing a swap that credit-rating companies may term a default.

Schaeuble told European Central Bank President Jean-Claude Trichet and fellow euro finance ministers in a June 6 letter that maturities on Greek bonds should be extended seven years to give the debt-wracked nation time to overhaul its economy.

Any agreement on aid at a ministers’ meeting on June 20 “has to include a clear mandate -- given to Greece possibly together with the IMF -- to initiate the process of involving holders of Greek bonds,” Schaeuble wrote in the letter.

The German position clashes with the stance of European Commission officials and the ECB, which oppose anything beyond a voluntary rollover of debt as they struggle to avert the euro area’s first sovereign default. A swap offering investors terms that are “worse” than those of existing securities would constitute a coercive or distressed exchange, and be considered a default, Fitch Ratings said this week.

“Either Schaeuble softens his calls or the ECB makes further concessions,” said Christopher Rieger, head of fixed- income strategy at Commerzbank AG in Frankfurt.

Greek 10-year bonds yield almost 16 percent and the country is the most expensive in the world to insure against default, at about 1,400 basis points, according to CMA prices.

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