Germany wants bondholders to give Greece more time to repay its massive debts, but faces opposition from the European Central Bank and some other eurozone countries. Here are some brief questions and answers.
Q: Why does Germany want bondholders to give Greece more leeway on its debts?
A: Greece's partners in the eurozone are currently putting together more rescue loans for the country, because they realize a euro110 billion ($160 billion) package granted last year won't be enough.
Germany and some other rich states say they won't back more aid for Greece unless private creditors like banks and investment funds share some of the pain. So far, bondholders have been spared in all the European bailouts.
Q: What exactly is Germany proposing?
A: Germany wants Greece to swap bonds that need to be repaid soon with bonds that don't expire for an extra seven years. That means Greece needs less money in the short-term and has more time to get its struggling economy back on track.
Q: What are the problems with that idea?
A: The European Central Bank and several credit rating agencies have warned that such a bond swap would count as a default by Greece, which could hurt banks across Europe and make bondholders wary about investing in other struggling eurozone countries, worsening their problems.
A default would also be humiliating for the eurozone and could force a payout of insurance investors have taken out on Greek bonds.
Q: Why could giving Greece more time to repay be seen as a default?
A: Getting their money back later than expected means bondholders may miss out on more lucrative investments in the meantime. Unless they are compensated for this, rating agencies say bondholders won't voluntarily sign up to such a scheme.
Q: What's the alternative?
A: Eurozone countries and the International Monetary Fund could continue to shoulder the full burden of helping Greece, but some countries have warned that their Parliaments would block such a move.
Another option discussed by finance ministers would be to ask banks to buy new Greek bonds as old ones expire. That option has received some support from the ECB, but with market interest rates for 10-year bonds above 16 percent, a normal debt rollover would be much too expensive for Greece.
Q: Would any of these proposals really solve Greece's problems?
A: Most analysts say that Greece's debt, approaching 160 percent of economic output, is simply too high to repay, even if the country gets more time. They say that eventually Greece's overall debt load will have to be cut, a move that the eurozone has so far ruled out.
AP
