Europe News

Euro Zone Seeks Central Banks' Help in Greek Bailout

Peter Spiegel and Alan Beattie, Financial Times

Euro zone governments are looking to the European Central Bank and national central banks to help pare back the cost of a second rescue package for Greece which would otherwise amount to 170 billion euros ($224.2 billion).

Macduff Everton | Ironica | Getty Images

Figures seen by the Financial Times reveal Greece needs 136 billion euros in fresh bail-out funding from the European Union and International Monetary Fund – in addition to the 34 billion euros left over from Greece’s first bail-out. This is 6 billion euros more than EU leaders agreed in October. Germany, the Netherlands and Finland have insisted on paying no more than 130 billion euros.

Euro zone finance ministers, who meet in Brussels on Monday to hammer out a deal to save Greece from default, hope the ECB can contribute by forgoing some of the future profits it would earn on its Greek bondholdings, which it has said it is willing to do.

Senior officials said they would also discuss a possible contribution from eurozone national central banks whose bondholdings could be included in a 200 billion euros debt restructuring to be launched alongside the bail-out.

A central bank contribution would help the euro zone and IMF to keep their contribution to 130 billion euros. It would also reduce Greece’s ratio of public debt to gross domestic product in 2020 closer to the 120 percent the IMF deems sustainable, permitting it to take part in a second rescue.

In a conference call on Sunday evening, euro zone finance ministry officials were still debating the terms of debt restructuring – including whether to force more losses on private bondholders – and how to bring down the size of the total bail-out. But senior officials said they believed a deal would be reached at a meeting of euro zone finance ministers on Monday in Brussels.

“I don’t think there is a majority to go a different way because a different way is enormously arduous and costs lots and lots of money,” Maria Fekter, the Austrian finance minister, told local television.

Though senior European officials said figures were still being negotiated, the IMF contribution to the new rescue will be far lower than originally anticipated. The figures show the IMF will only contribute 13 billion euros to the second bail-out, far less than the one-third lent in the Irish, Portuguese and first Greek bail-outs.

“The IMF is expected to be stingy,” said one senior European official.

Pressure from the US and emerging market countries to restrict the IMF’s exposure led to the lower contribution, according to officials familiar with the negotiations. Greece has already borrowed far more relative to its own financial contribution to the IMF than any other crisis loan recipient in the IMF’s history.

The IMF portion of the new package, which will be added to the remaining 10 billion euros in IMF commitments from the first Greek bail-out, will be converted into a lending program with a repayment period of up to 10 years rather than the five years under the current loan.

The 170.5 billion euros rescue package does not include 35 billion euros that will be set aside temporarily to ensure Greek banks can fund themselves when Athens is ruled in “selective default” after the restructuring.

The new bail-out includes 35.5 billion euros for private bondholders as part of the debt restructuring. Of that, 30 billion euros is expected to come in a direct payment to bondholders in cash or bonds issued by the euro zone’s rescue fund in exchange for writing off 100 billion euros in Greek debt.

The remaining 5.5 billion euros is interest payments still owed on existing bonds, though officials are considering cutting that amount.

Opinion polls in Greece show the two big mainstream parties – centre-left Pasok and centre-right New Democracy – continued to suffer ahead of April elections because of their support of tough austerity measures accompanying the bail-out.

Support for New Democracy dropped to 24 percent or lower in three new polls, with Pasok showing only at best 14 percent – meaning the two parties, the only to explicitly support the bail-out’s terms, would not have a majority in a new parliament.