German banks agree to help bail out Greece

Germany said Thursday its banks will take part in a second Greek debt rescue package, a move aimed at soothing voter unease about paying the lion’s share of what will be the eurozone’s fourth bailout.

The exact details, however, remain to be hammered out, with banks and insurers saying after a meeting with the government in Berlin that they would take part “within the economic and legal possibilities.”

“I’m happy that the representatives of the financial sector have said they are ready to participate in a European package for a second aid programme for Greece,” Finance Minister Wolfgang Schaeuble told reporters in Berlin.

He said the German finance sector had agreed to extend the maturities of around 3.2 billion euros ($4.6 billion) in Greek bonds due to expire between now and 2014.

This included some two billion euros held by German banks and insurance firms, and around 1.2 billion euros held by so-called ‘bad banks’, a hangover from the 2008-09 global financial crisis, Schaeuble told a news conference.

He said German banks held in total around 10 billion euros in Greek bonds, 55 percent of which do not expire until after 2020, showing that they “were already contributing to the long-term stability of Greece.”

“I am confident that we will have a solution by Sunday (when eurozone finance ministers meet in Brussels) and then we’ll work further on the follow-up to the decisions over the coming weeks,” Schaeuble said.

The banks cautioned in turn that their “voluntary” but “substantial” contribution would only be forthcoming if “other decisive investors … also take part within a binding and verifiable European package.

“In this way German institutions are contributing to the financing of the Hellenic Republic in line with their European responsibilities,” a statement said.

Josef Ackermann, chief executive of Deutsche Bank, said: “We are of the opinion that Greece must be helped … We are ready to do so.”

Ackermann said that the German groups chose to follow the outline of a proposed deal with French banks announced by President Nicolas Sarkozy earlier this week.

That arrangement involved French banks agreeing for maturities on some Greek government bonds to be extended by 30 years.

“But we must still add some modifications,” Ackermann cautioned in a joint news conference with Schaeuble.

On Wednesday, the Greek parliament approved in a critical vote a 28-billion-euro austerity package demanded by its creditors for a 12-billion-euro lifeline to stop Athens defaulting on its sovereign debt.

Passed by MPs amid clashes between Greek demonstrators and police, the funds are part of a 110-billion-euro aid package agreed last year with the European Union (EU) and the International Monetary Fund (IMF).

Greece now needs a second bailout of around the same amount but Germany, the EU’s main paymaster, has been pressing for private sector creditors to shoulder their share of the burden by extending maturities on Greek bonds they hold.

Merkel told bankers in a speech on Wednesday: “If you want to be able to continue working in stable countries, then lend us a hand and do so with a modicum of goodwill.”

But there are concerns that rating agencies will see any rollover of Greek debt by banks and insurers as non-voluntary and declare Greece in default, something which some observers fear could be calamitous for the global economy.