EU Commission readies voluntary debt swap plan: paper

BERLIN Mon Jun 13, 2011 7:45pm EDT

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BERLIN (Reuters) - Talks about a second bailout for Greece are getting closer to a conclusion as the European Commission pushes for a voluntary debt swap, media reported.

Olli Rehn, the European commissioner for economic and monetary affairs told Sueddeutsche Zeitung in an interview to be published on Tuesday that a solution for the Greek sovereign debt crisis was not as far off as some might think.

"We are preparing an agreement on the basis of the 'Vienna Initiative', whereby banks keep their bonds longer and in fact voluntarily," he said, referring to a debt rollover in which banks that hold Greek bonds are encouraged to buy more as their holdings mature.

"We are prepared to look at a solution, which is based on a voluntary extension of bond maturities and which under no circumstances leads to a credit default," he added.

Bundesbank President Jens Weidmann wrote in a guest contribution in the same newspaper that "nothing speaks against voluntary maturity extension." But it remained to be seen how "willing private investors" were to agree.

"Politicians cannot assume that the central banks of the euro system agree to maturity extensions of their holdings or as part of their refinancing operations accept bonds as collateral from states that are rated insolvent," Weidmann said.

The comments come ahead of a meeting of euro zone finance ministers in Brussels on Tuesday, which is expected to prepare the ground for a further gathering in Luxembourg on June 20, when the ministers are supposed to finalize the details of a second package of emergency loans for Greece.

ECB President Jean-Claude Trichet made clear last week the central bank opposed any scheme for private sector involvement that would cause a "credit event" or be considered by credit ratings agencies as a "selective default.

Reflecting the sensitive nature of the debate within the ECB, Trichet's deputy Vitor Constancio was forced on Friday to retract comments made earlier in the day in which he said his boss was not ruling out an extension of Greek maturities.

Funding fatigue is growing in the north European creditor countries, especially Germany, the Netherlands, Finland and Austria, just as austerity fatigue is mounting in Greece.

Rehn told the newspaper that he was worried by this development. "It is important to avoid that the bushfire in Greece, Ireland and Portugal turn in to a European forest fire," he said.

Weidmann, also an ECB Governing Council member, reiterated comments made over the weekend by saying heavily indebted Greece holds its own fate in its hands and would have to face the consequences of its a default if it did not reform its economy as agreed as part of its bailout terms.

"Solidarity is not a one-way street, but is based on mutuality," he wrote. "If a country decided not to fulfill the obligations that come with the support, the bases for the support would be gone."

Weidmann added that this would burden other euro zone member states with uncertainty, risks and further costs, "but the euro would also survive this -- in no way desirable -- endurance test.

(Reporting by Eva Kuehnen; Editing by Lisa Shumaker)

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