German finance minister rallies MPs to back Greece aid

10th June 2011, Comments 0 comments

German Finance Minister Wolfgang Schaeuble told parliament on Friday that private creditors must help with a new aid package for Greece, but signalled that compromise on the method was possible.

In an impassioned speech to deputies who later approved a symbolic motion in favour of further aid for debt-ridden Greece, Schaeuble underscored "Germany's responsibility to Europe" and the need to protect the euro.

Schaeuble told the lower house of parliament that a new package was "inevitable" and would establish "a fair distribution of risks between the taxpayer and private creditor," to send "the message that you cannot simply dump the risk on the taxpayer".

But he also specified that eurozone finance ministers would set up a working group to hammer out ways to involve private investors in the wake of opposition to the idea by France and by the European Central Bank (ECB).

"In order to find a good solution which the European Central Bank can support, which the ECB must support, we have decided within the Eurogroup to create a working group that will assess the narrow window between involving private investors and seeing potentially negative consequences for financial markets," Schaeuble said.

He said representatives from the International Monetary Fund, the European Commission and the ECB would join the working group.

Schaeuble has insisted for weeks that a second rescue package being negotiated for Greece must include contributions by private creditors, banks and investment funds as the price of Berlin's involvement.

Many German deputies and taxpayers are deeply reluctant to offer another lifeline to what they see as the spendthrift Greek government.

But Schaeuble said the decision was in their long-term interest for the sake of the euro single currency, although he acknowledged that the decisions at hand were "difficult for many citizens".

The minister said he could not yet estimate how much Greece would need, but other officials have spoken of some 90 billion euros ($130 billion), following the 110-billion-euro package agreed last year by eurozone countries, the ECB and the International Monetary Fund.

Berlin has suggested that private banks and insurance companies forego collecting Greek public debts for seven years.

In a letter sent to eurozone partners and made public on Wednesday, Schaeuble said an agreement could be reached "through a bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven years."

Most economists believe the deal that is likely to emerge -- possibly before the European Union summit June 20 -- will involve banks and insurance companies agreeing to roll-over bonds as they mature.

According to a finance ministry spokesman, some 80 to 90 billion euros of Greek debt will mature by 2014.

ECB President Jean-Claude Trichet said on Thursday that any participation by private banks should be "purely voluntary," a theme picked up Friday by Greek Finance Minister George Papaconstantinou.

A fresh rescue package for Greece should be a combination "of funds coming from the country's planned privatisations, the voluntary participation of the private sector and possible loans" from eurozone countries, Papaconstantinou said at a news conference.

Germany's Der Spiegel magazine meanwhile reported that eurozone government officials want private investors to contribute about 20 billion to 35 billion euros to the next rescue package.

© 2011 AFP

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