German plans on Greece bailout

Berlin is pushing hard for commercial banks to contribute to the cost of an estimated 120 billion euro bailout, but is struggling to convince the European Central Bank and ratings agencies it can do so without triggering a credit default.

Officials state the ECB argues that a swap, favoured by German Finance Minister Wolfgang Schaeuble would be judged a default and make Greek bonds unacceptable as collateral, potentially leading to a collapse of the Greek banking sector.

Asked if the banks went along with a resolution by the German parliament urging private creditors to contribute, BdB Managing Director Michael Kemmer told a radio interview.

Schaeuble urged parliament on Friday to back additional aid for Greece but said the banks' participation in a new package was "unavoidable" and that he favoured a swap that would push out Greek debt maturities by seven years

Euro zone official sources told Reuters on Thursday that the new international bailout being put together for Greece was likely to total around 120 billion euros, instead of the 90 billion euro figure previously suggested by officials.

Part of the poker game going on is an effort to convince all the banks involved that it is in their interest to take on future Greek debt in aid of avoiding a full-scale default on existing loans.

The BdB had taken a stiffer line earlier this week, saying that the banks' involvement previously planned only for after 2013 was a "last step" and that that point had not been reached.

Kemmer reiterated that the participation of private creditors should only be on a voluntary basis but that a "disorderly" default for Greece must be avoided.

"In principle, it is correct that the investor who is holding the paper, which is filled with risks, has to attend to those risks too," he said.

"We cannot afford to have a further crisis of confidence. On top of that it is not only the banks which are affected.

A disorderly default could also affect life insurers and old age retirement payments," he added.

Copyright Reuters, 2011