UPDATE 1-Less than 75 pct of banks sign up to Greek buyback

Fri Sep 16, 2011 2:43pm EDT

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(Adds quotes from Reynders, details throughout)

FRANKFURT/WROCLAW, Poland, Sept 16 (Reuters) - Less than 75 percent of private sector creditors have signalled they will take part in a scheme to buy back Greek debt, far less than the 90 percent target set by Greece, a shortfall that could jeopardise the euro zone's second bailout package for Athens.

Several sources familiar with the buyback process told Reuters between 70 and 75 percent of the banks, insurance companies and other private sector holders of Greek debt had said they would take part in the scheme, a critical element in the new, 109-billion-euro package of support for Greece.

The shortfall will now either have to be made up for by other euro zone governments, or creditors that have signalled they will take part may have to increase their contribution, which already foresees a 21 percent reduction in the value of their holdings as part of the exchange.

Belgian Finance Minister Didier Reynders played down the potential hurdle created by the lower-than-expected participation, saying if necessary the euro zone's EFSF bailout fund could be used to make up the difference.

"We should have the final figures by mid-October and if by then this figure of 70-75 percent is confirmed, we'll have to look at the tools available to react," he told reporters in Wroclaw, where EU finance ministers were meeting informally.

"I want to remind you that by then the EFSF will have been strengthened," he said.

The European Financial Stability Facility will have gained new powers by mid-October, allowing it to intervene on secondary bond markets, extend credit lines preemptively to at-risk governments and help recapitalise banks.

"It's one of the solutions. If the private sector does not take up its responsibilities, somebody will have to," Reynders told Reuters, referring to euro zone governments.

Alternatively, Athens has indicated that it has funds set aside for banks that could be used to make up the shortfall.

Greece has already been granted 110 billion euros of bilateral loans by the EU and IMF, the seventh tranche of which is expected to be paid in mid-October if EU/IMF/ECB inspectors determine that Athens has met its budget-cutting targets.

At the same time, euro zone countries have agreed to grant Greece a second bailout of 109 billion euros, as long as there is also a "significant" private sector participation in the package.

At a summit on July 21, private sector creditors, represented by the Institute of International Finance, agreed to take part and help reduce Greece's debt burden by around 37 billion euros via a debt buyback and bond exchange.

The IIF has said it will now go back to banks and see if it can secure further support to raise the participation rate closer to the 90 percent target. (Reporting By Philipp Halstrick, Julien Toyer and Illona Wissenbach; Writing by Luke Baker and Edward Taylor; Editing by James Dalgleish)

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