Germany has plan for Greece private creditors

The German Finance Ministry has come up with a model for a new aid package for Greece that would include the voluntary participation of private creditors, Welt am Sonntag newspaper reported on Saturday. The newspaper said in an advance excerpt released ahead of publication on Sunday that the plan calls for investors who hold Greek bonds due to mature in 2012 to 2014 to voluntarily exchange those for new sovereign debt instruments with an extended maturity of seven years.
The Finance Ministry did not comment on the report. Welt am Sonntag quoted from an unofficial paper from the Finance Ministry saying it is in principle possible to structure a conversion of debt in such a way to avoid default. According to the plan, creditors could be motivated to join in a voluntary exchange with the help of a so-called "collective action clause" that would be introduced into existing bond contracts in the event not enough investors were prepared to take part.
At the same time, the ministry's plan says that investors who swap their old bonds into new bonds would get preferential treatment in the future if another rescheduling is needed. There are concerns in financial markets that Greece will eventually be forced into a coercive restructuring of its debt, which stood at nearly 330 billion euros ($476.1 billion) - or close to 150 percent of GDP - at the end of last year.
A harsh restructuring that would force losses on private creditors has been ruled out for now, but Germany and allies like Finland and the Netherlands are insisting on some sort of symbolic participation from the private sector. Sources have told Reuters for the past two weeks that investors who hold Greek bonds due to mature in 2012 and 2013 could be encouraged to roll over that debt under a scheme similar to the "Vienna Initiative" used in early 2009 to safeguard banking systems in central and eastern Europe.
It has until now been unclear what incentives governments could offer to convince investors to buy new Greek bonds, but in similar cases in the past, they have been promised higher coupons, preferred creditor status or collateral as inducements.