Germany offers Greek debt compromise plan: report

19th June 2011, Comments 0 comments

German Finance Minister Wolfgang Schaeuble has proposed a compromise Greece rescue plan to resolve a dispute with the European Central Bank, Der Spiegel magazine reports in its upcoming Monday issue.

The proposal developed by his ministry would see a beefed-up version of Europe's temporary bailout mechanism lending to Greek banks to insure they have adequate collateral with the ECB, the report said.

It would boost the effective lending capacity of the Emergency Financial Stability Facility (EFSF) to 440 billion euros ($629 billion), and see member states double the amount of guarantees they provide the fund.

Germany's share of guarantees would climb to 246 billion euros from 123 billion euros, according to the report.

Although the EFSF already has a total capacity on paper of 440 billion euros, its effective lending ability is considered much less because the funds are only generated by selling bonds to investors.

The plan to lend to Greek banks through the EFSF would compliment a second bailout for Greece for between 90 billion and 120 billion euros, Spiegel reported.

Schaeuble's latest plan is an attempt to resolve a dispute with the ECB, which along with other eurozone leaders rejected a plan to swap existing Greek debt for new bonds with longer maturities.

The ECB has repeatedly warned that such a move could amount to a default and disqualify Greek bonds as collateral for the central bank's liquidity-providing operations.

Without ECB liquidity, Greek lenders would be cut off from critical funding, likely touching off a banking crisis.

"Schaeuble would like to eliminate an argument by the ECB which has until now stood in the way of a write-off by private creditors," Spiegel wrote.

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed Friday to a plan through which private bondholders could volunteer to buy new government bonds to replace ones that matured.

This "rollover" option was favoured by the ECB and France, since it avoids the risk of rating agencies declaring Athens in default, something which could send shock waves through the European and global financial systems.

Merkel and Schaeuble had previously called for full-scale debt restructuring but the German leader appeared to back down after the meeting with Sarkozy.

Eurozone finance ministers were to meet in Luxembourg later Sunday for talks on saving Athens from default as early as next month.

Merkel said in a separate interview released Sunday that she was upbeat about the eurozone despite the Greek crisis.

"We are already far better equipped now in Europe," Merkel told Super Illu magazine, referring to austerity measures taken by debt-laden member states.

But she said the countries sharing the euro still had to work through "significant failures" and "sins of the past" in terms of fiscal discipline.

Merkel said Greece had "achieved a great deal in the last year -- we should recognise that".

"It has cut new borrowing by five percent -- that is remarkable savings but it is not enough," she said.

-- Dow Jones Newswires contributed to this story --

© 2011 AFP

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