THE FRENCH AND GERMAN leaders Nicolas Sarkozy and Angela Merkel say they want a second rescue package for Greece pushed through as soon as possible.
The pair had initially disagreed over a timeframe for sealing a new deal for Greece, but Germany has softened its position on giving the country more help by agreeing with France that private investors would be involved only on a voluntary basis.
They’ve announced they had reached common ground on the delicate topic of involving bondholders, calming fears Germany wanted to see losses forced on private creditors.
Eurozone finance ministers earlier this week failed to reach a deal on a second set of rescue loans necessary to save Greece from defaulting on its massive debts amid divisions over the role of banks.
Today’s news from France and Germany boosts hopes that the debt-ridden country will get another rescue package in order to avoid a default. The IMF has said that it’s “ready to continue its support” provided the Greek government sticks to austerity measures. Those measures have angered the Greek people, who’ve taken to the streets to protest.
In recent weeks, Angela Merkel had backed her finance minister’s calls for banks and other private bondholders to give Greece an extra seven years to repay its bonds. Rating agencies as well as the European Central Bank, however, warned that such a moved would likely count as a “credit event,” a partial default by the country could spread panic on financial markets and hurt Greek banks.
Merkel has indicated she now favors a so-called “Vienna-style” agreement, which had previously received support from the ECB and France.
Under such a deal, banks and other private investors would commit to maintaining their exposure to Greece by buying new bonds as old ones expire and keeping their Greek banking subsidiaries afloat. That type of bond roll-over would likely have to come with some tweaks, as market interest rates on Greek bonds are currently way above what the Greek state could afford.
“It is about a voluntary participation of the private sector, and for that the ‘Vienna-style,’ as it is called, is a good basis and I think that we can use it to move forward,” Merkel told reporters.
Sarkozy said “relatively precise principles” for the private-sector involvement would now have to be fixed, adding that “this can be put into place relatively quickly.”
Merkel also ruled out the idea of triggering anything that could be counted as a default. “We do not want that,” she stressed. “This is about a voluntary participation.”
European finance ministers meet on Sunday and Monday to discuss the crisis.
In Athens, Greek Prime Minister George Papandreou has replaced his finance minister as part of a broad reshuffle in an effort to calm criticism and meet the requirements to get the fresh aid injection.
- Additional reporting by AP
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