German Move Roils Talks on Greece

Wall Street Journal
July 7, 2011

European governments' plan for private-sector creditors to help Greece's next bailout without triggering a default were thrown into doubt Wednesday, as senior German officials resurrected a once-rejected proposal that would cost investors more.

The German proposal—calling for investors to be encouraged to swap Greek government bonds for new bonds—had been ditched a month ago after strong opposition from the European Central Bank and governments including France, because it would lead to Greece being called in default by rating agencies.

The call from Berlin has reopened a debate over whether the 17 countries that use the euro should accept one of their number being labeled a defaulter even for a short period. It suggests Germany still thinks that's a price worth paying for a larger contribution by investors. That in turn would reduce the size of the new official bailout governments expect to provide for Greece to help tide it through 2014.

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