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Merkel repeats call for bank aid in debt crisis

The Local · 19 Jun 2011, 11:37

Published: 19 Jun 2011 11:37 GMT+02:00

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"We must be sure to try to have a substantial contribution" from private creditors like banks and insurance companies for debt-laden Greece, Merkel told a meeting of her Christian Democrat Union party in Berlin.

But the German leader added that "at the moment we can only get the participation of the private investors on a voluntary basis."

The "voluntary" nature of such involvement is key for many observers, who fear that forced input from the private sector would be seen as a debt default on the part of Greece, with ramifications far beyond.

German Finance Minister Wolfgang Schäuble echoed Merkel but also stressed that the private sector's role should be "quantifiable" and "guaranteed", in comments made to the daily Börsenzeitung.

The EU and the International Monetary Fund are trying to assemble a second bailout package for Greece worth almost as much as last year's €110 billion ($156 billion) loan deal.

However in return, Athens will have to introduce strict austerity measures to rein in the burgeoning national debt, leaving the government to deal with widespread public protest.

Greek Prime Minister George Papandreou announced a new government line-up on Friday, bringing in political veterans to ward off economic meltdown and seek to avoid the civil unrest growing.

In the latest demonstration, police said up to 3,000 protesters took to the streets of Athens on Saturday.

Supporters of the All Workers Militant Front (PAME) marched towards the city's main Syntagma square and the parliament, the site of a three-week-long protest of the group calling themselves "The Indignants."

The Greek General Confederation of Labour (GSEE) also announced plans to strike during an upcoming parliamentary debate and vote on the country's future budget plans.

As Greece's new cabinet works to muster parliamentary support for the tough package demanded by the EU and IMF, finance ministers from the 17 euro nations will gather on Sunday evening in Luxembourg for the first of a series of crucial crisis meetings this week.

As Greece faces imminent default, they will debate whether to release the next installment of the bailout from 2010 - €12 billion Athens needs to pay the bills in July.

With the IMF demanding assurances that Athens can finance itself over the next year before paying out, the terms of a second rescue package will also come under scrutiny.

The informal conclave, due to carry on through Monday and expand to the full 27 EU finance chiefs, comes ahead of a key bloc summit on June 23 and 24 that is due to put the final stamp on an economic governance package.

Initially aimed at assuring markets that Europe would avert future debt crises through closer monitoring and streamlining of economic policies, the summit will instead be overshadowed by events in Greece.

In Luxembourg ministers will look at how to involve banks and private lenders in the next Greek bailout, in line with demands from countries such as Germany, Finland and The Netherlands keen to reassure taxpayers unwilling to pay for excesses elsewhere.

"We are working on a new programme to be finalized rapidly with additional financing," EU president Herman Van Rompuy said in Dublin this week.

Story continues below…

Merkel's comments came a day after she appeared to give ground on her previous demands for private involvement following talks in Berlin with French President Nicolas Sarkozy.

Merkel had been pressing for private investors to contribute up to a third of the second rescue package by accepting later repayment on their Greek bonds.

She said she now backed a new package along the lines of a deal on Romanian debt agreed in Vienna in 2009, whereby private banks agreed to buy new government bonds to replace ones that matured.

Eurogroup chief Jean-Claude Juncker said Saturday that the problems which have forced Greece, Ireland and Portugal to seek emergency aid could affect Italy and Belgium, even before Spain which had been tipped as the next casualty.

The Luxembourg prime minister, who heads the group of eurozone finance ministers, told the German daily Süddeutsche Zeitung, "we are playing with fire."


The Local (news@thelocal.de)

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Your comments about this article

15:53 June 19, 2011 by dtorne
Please, someone restructure Greece. It does not matter what markets says. Markets reacts at short term. We have to restructure for the sake of Europe future.

Restructure and start anew. You mistake again, you restructure and anew. Full Stop. If we do not restructure, we do not evolve.

18:50 June 19, 2011 by Bushdiver
I still can't see this working. What private investors and banks are going to voluntarily take on a Greek debt that has little to no chance of surviving? I think every country should go back to their own currencies and this kind of problem what not happen again. Sure, the Germans and French want to push this additional loan through since they are the ones holding the majority of the Greek debt. This will in the end wind up as throwing good money after bad and in the end the Greeks will default. I think they are beyond help now.
19:06 June 19, 2011 by mashlakhito
This will not end up as the Germans and French want it. Either they are blind to the facts or simply to arrogant to admit that they have failed. A Greek default is inevitable. Screw the dismal interest rates that banks give you nowadays, I am emptying my account and stashing it under my pillow. :D
21:04 June 19, 2011 by elboertjie
No more bailouts!

End this NOW!
22:14 June 19, 2011 by harcourt
I draw your attention to the bar graph at the end of this article http://www.bbc.co.uk/news/business-13828340 and you will see that the German Govt. is exposed to about 22bn euros whereas the French Govt. is exposed to only about 15bn euros in the Greek financial crisis. No wonder Merkel is desperate to get a solution and not let Greece default.
22:40 June 19, 2011 by mashlakhito
I wouldn't see it the way that you have pointed it out harcourt. Yes, the German government has about 7bn euro of Greek exposure, but French banks have way more exposure to Greek debt. And while the government might lose out a little less than the German government should and when Greece defaults, the French banking system looks like will need a great deal of bailing out than the German banks. I would say its better to look at the total degree of exposure rather than breaking it down, cause at the end of the day if the big banks were to fail the governments will bail them out one way or another.
07:39 June 20, 2011 by harcourt
mashlakhito :- I take your point, but is it necessarily the case that a government automatically has to bail out its own banks? I'm pretty sure that this didn't happen in the case of Iceland. I'm a complete layman on high finance however, so my mistake, the bar graph was in dollars not euros. But which ever way you look at it, it's a hell of a lot of money !!!
08:27 June 20, 2011 by mashlakhito
It not necessarily the case that a government would bail-out its banks. However, I would highly suspect that the French Banks involved are the big ones and I would suspect that the government would not let the big banks fail. And even if they do, being the big banks I would imagine that they have millions of customers and should they let be gone bankrupt, that would be a hella of a lot $$$ to cover through the deposit insurance. Can you imagine the worst case scenerio of having each depositor insured for 100,000euros and if the bank has 20 million customers nationwide...I think it would be less damaging to the the bank bailed out, than having to pay all that $$$ and have a failing bank.
12:45 June 20, 2011 by harcourt
Thanks mashlakhito
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