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 letter yesterday 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, which was provided to Bloomberg and reported earlier by Die Welt newspaper.
The German position clashes with the position of European Commission officials and the ECB opposing anything beyond a voluntary rollover of debt. 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 yesterday.
With a return to capital markets in 2012 “more than unrealistic,” Greece is likely to need additional aid to avert “the real risk of the first unorderly default within the eurozone,” Schaeuble wrote.
While the size of the package can’t be assessed until the so-called troika of officials from the International Monetary Fund, ECB and European Commission give a progress report on Greece, it is likely to be “substantial” and must “involve a fair burden sharing between taxpayers and private investors,” Schaeuble said.
‘Substantial’ Contribution
“This process has to lead to a quantified and substantial contribution of bondholders to the support effort, beyond a pure Vienna Initiative approach,” whereby western banks active in eastern Europe in 2009 during the financial crisis were encouraged to roll over funding to subsidiaries and inject fresh capital if needed.
“Such a result can best be reached through a bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven years, at the same time giving Greece the necessary time to fully implement the necessary reforms and regain market confidence,” Schaeuble said.
Bloomberg
