Deutsche Bank economist: banks could aid Greece too

BRUSSELS (Reuters) - Banks and other investors in Greece could shoulder part of the cost of rescuing the country by writing off some of the money they lent to the struggling euro zone state, Deutsche Bank's chief economist says.

Warning that Greece may fail to cut its debt fast enough to qualify for a euro zone rescue, Thomas Mayer said: "The main idea is that the private sector creditors contribute a certain amount to the restructuring of the country's debt which they could digest."

"If you cut the Greeks' 300 billion euros ($400 billion) of debt by half, Greece could probably go back to the market and borrow," he told journalists late on Monday in remarks withheld for release on Tuesday. "Fifty billion could be taken by the private sector, by banks and insurers, for example."

Mayer's remarks are an isolated signal of support in the banking industry for the German government's calls for investors to help foot the bill for a Greek rescue.

His views carry weight in Berlin because Deutsche Bank is Germany's largest bank and its Chief Executive Josef Ackermann is close to Chancellor Angela Merkel, having advised her throughout the credit crisis.

Saying Greece had entered "a death spiral of government insolvency," the former Goldman Sachs banker urged euro zone countries to tackle Greece's entire debt pile. Many analysts call the planned 30 billion euro aid package, with the IMF providing up to another 15 billion, insufficient.

"The Greeks themselves expect to need at least 80 billion euros over the next three years," Mayer said.

"We may spend up to 120 billion euros without knowing whether we get something for it. It is more sensible to spend the money up front."

Some experts warn that restructuring Greece's loans -- effectively annulling some of its debts and putting the country technically in default -- would devalue Greek bonds and make it difficult for Greek banks to remain solvent.

Standard & Poor's on Tuesday downgraded Greece to junk status and cut Greek bank ratings.

Deutsche Bank said on Tuesday it had no direct exposure to Greece. Others are not so fortunate.

Germany's Hypo Real Estate and Commerzbank, already rescued by state bailouts, have roughly 11 billion euros of Greek debt. Belgium's Fortis had exposure to Greece of 4 billion euros at the end of 2009.

Write-downs would force them into a scramble for fresh capital.

The Bank for International Settlements has said Greek borrowers owed $236 billion to overseas lenders at the end of 2009, with half owed to creditors in two countries -- $75 billion in France and $45 billion in Germany.

(Editing by Susan Fenton)