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German Banks Ask for Incentives to Help Greece

Tuesday, 21 Jun 2011 | 4:55 AM ET

German banks want incentives to buy new Greek bonds once the old ones mature, to keep the country afloat, according to representatives of the Association of German bankers.

"Certain guarantees" that would trigger a better rating of any new bond would be an example of such an incentive, a spokesperson of the association told CNBC.

Among others, the association is the voice of Deutsche Bank and Commerzbank. Such a guarantee would essentially mean that the private sector's participation in buying Greek debt would be backed be the state, something the German government had wanted to change at least for part of the rescue money for Greece.

The calls for more incentives for banks did not go down well with Germany's Finance Minister Wolfgang Schaeuble. “There is no need for additional incentives”, he said, quoted by Reuters. “Everybody has a self-interest in the stable development of Greece.”

But as Ifo's Chief Economist Kai Carstensen explained: ”A CEO of a bank cannot voluntarily give up on potential profits. He has to serve its shareholders and he does not have to serve to the interest of taxpayers. This might even have legal consequences.”

Sources close to the German banking watchdog told CNBC that European regulators have serious concerns that banks will participate in a Greek bailout voluntarily as there might be too little at stake.

German Banks are sitting on 9.9 billion euros ($14.16 billion) of sovereign Greek debt. The biggest chunk of that sits with the bad bank of Hypo Real Estate, while Deutsche Bank reports holdings of 1.6 billion euros and Commerzbank of 2.9 billion euros.

Deutsche Bank has written down their investment to market value, while Commerzbank has shifted the debt to its banking book, which enables it to hold the bonds to maturity without writing them down according to accounting rules. German insurers – Allianz, Munich Re and Hannover Re - according to an internal memo of the Bundestag have as well already halved their holding of Greek debt to 2.8 billion euros.

That compares with 60 billion euros of Greek sovereign debt owned by the National Bank of Greece, Piraeus Bank and EFG Eurobank, according to a research note of UBS.

“A voluntary participation of banks is just symbolic policy”, Carstensen told CNBC. “By that, banks will not contribute a substantial amount to a new rescue deal.”

Contact Europe: Economy

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