Banks to have role in Greek initiative

GOVERNMENTS IN Europe are preparing to press the banks they support to avoid dumping Greek debt as part of their latest effort to shore up the country’s troubled bailout.

The nascent initiative is one of several strands in a multi-pronged campaign to reassert control over the bailout which is under strain as the Greek government prevaricates on fiscal reforms and privatisation.

Although the endeavour includes moves to engage in a “soft restructuring” of Greek debt, a well-placed euro zone source said the possibility of a new round of external aid remained on the table.

Euro zone finance ministers agreed on Monday to explore a voluntary reprofiling of Greek debt, under which private creditors would be asked to accept longer loan maturities but no cut in their interest or principal.

While careful not to use the word “restructuring” in this context, euro group chief Jean-Claude Juncker broke a taboo the next day when he described such reprofiling as a “soft restructuring”.

This angered the European Central Bank, which opposes any debt restructuring, and surprised some ministers. “That suddenly changed the dynamic,” said the source, as it immediately took attention away from other elements of the plan.

The hothouse atmosphere of the present debate was underscored yesterday when European Council president Herman Van Rompuy said political leaders should hold their tongue when commenting on sensitive financial issues.

“Politicians and others with big responsibilities have to think twice before they speak on such delicate matters,” he said in Brussels. “Money matters.”

As the EU-IMF bailout troika prepares to issue an adverse report on the Greek government’s execution of its rescue plan, Mr Van Rompuy stepped up pressure on prime minister George Papandreou to accelerate the bailout reforms and a €50 billion privatisation plan.

“The coming days and week are very important in order to establish a programme so that Greece is now back on track for 2011 and also for the upcoming year. There is no alternative for this. It is doable.”

The euro zone source said a scheme under which financial institutions would be asked to hold on to Greek paper could be a powerful tool in view of huge public recapitalisations of Europe’s banks. The large scale of such support meant it would be very difficult for banks supported by governments to refuse to co-operate, the source said.

The scheme would be modelled on the Vienna Initiative, an agreement in which major banks pledged to maintain their exposures in central and eastern Europe and to recapitalise their subsidiaries there.