German banks will participate in Greek rescue: banker

25th June 2011, Comments 0 comments

The head of an influential German banking federation said Saturday that private banks would play a role in a new eurozone rescue package for Greece, a participation strongly backed by the German government.

"We will make our contribution," Michael Kemmer, head of the German federation of private banks, told the Neue Osnabrucker Zeitung daily newspaper.

A spokesman for the German foreign ministry clarified that discussions with private creditors about the specific role in the package were "ongoing", but noted there was no clear procedure defining how the process would work.

On Tuesday, Kemmer indicated German banks want incentives before they agree to take part in the rescue, saying they have 10-20 billion euros ($14-28 billion) invested in the country's bonds.

The chief economist at the European Central Bank Jurgen Stark on Friday warned that the private sector participation in a Greek rescue package injected added risk to an already volatile situation.

Stark said he understood the desire of European governments to involve the private sector, but urged debate on whether the strategy was "economically suitable and necessary."

Greece has debts of some 350 billion euros and needs a second bailout worth more than 100 billion euros after a 110-billion-euro bailout by the European Union and the International Monetary Fund last year proved insufficient.

Eurozone finance ministers want holders of Greek bonds -- primarily banks, insurers and pension funds -- to take part, possibly by agreeing to a rollover, whereby investors buy new bonds to replace ones that mature.

In doing so they have to ensure that involvement by private investors is viewed as voluntary, otherwise rating agencies could declare Athens to be in default, something which could have dramatic consequences.

On Friday, Stark urged particular caution on this issue, suggesting that if there were a change in the terms of the debt in a rollover of Greece's debt that credit agencies would call it a credit event and a default.

The German and French governments have lobbied private banks to engage in the rescue effort, arguing that since they are exposed to Greek debt their market credibility could suffer if the country defaults.

© 2011 AFP

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