Financial Times
July 11, 2011
An insistence by major European banks that the European Union must commit to a buy-back of Greek sovereign bonds would vastly expand the scope of the second bail-out for Athens and could encounter political resistance, particularly in Berlin.
The banks, led by the Institute of International Finance, have been negotiating with European officials for weeks on a plan for them to shoulder up to €30bn ($42bn) of a new €115bn Greek bail-out by exchanging their bond holdings for new, longer-maturing debt.
But the new plan appears to make banks’ agreement contingent on the buy-back plan, which the IIF says is essential to lower Greece’s overall debt burden and return the country to fiscal health.
“Plans focused solely on covering Greece’s financing needs without debt reduction will not work at this stage to stabilise markets and reverse contagion,” reads the proposal, contained in a paper presented to eurozone finance ministers on Monday and obtained by the Financial Times. A senior European official said the EU has agreed that cutting debt levels should be the “headline objective” of the bail-out.
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