| BRUSSELS, June 9
BRUSSELS, June 9 The European Union and the
International Monetary Fund are preparing a second bailout
package for Greece to give the debt-ridden country more time to
put its finances on a sustainable path.
Talks are more complicated than a year ago because of reform
fatigue in Greece and "solidarity fatigue" in several euro zone
countries, which want to see private investors help this time.
Below are some of the main ideas now under consideration.
WHEN WILL THE NEW PACKAGE BE READY
Policymakers aim to have a deal ready in time for a June 20
meeting of EU finance ministers.
WHAT WILL GREECE DO IN RETURN FOR MORE LOANS?
Greece has agreed to 6.48 billion euros worth of extra
austerity measures for this year and more savings up to 2015 to
cut deficits, a lenders' document obtained by Reuters shows.
HOW LONG WILL THE NEW PROGRAMME BE?
Euro zone officials involved in the talks say the idea is to
have a new programme for three years, from 2011 to 2014. It
would entail folding the existing 110 billion euro programme
agreed last year, into a new one, or running the existing
programme in parallel with a new funding scheme.
If the two programmes were merged it would mean that, if the
next 12 billion euro tranche of aid for Greece is paid out,
there will be 45 billion euros undisbursed from the original
bailout and that would be moved to the new programme.
HOW MUCH MONEY IS INVOLVED?
The exact amount has not been agreed yet. A decision could
be made by euro zone finance ministers at their June 20 meeting.
Euro zone officials estimate that the size of the new
programme could be around 120 billion euros, on top of the 45
billion left over from the existing programme once the next 12
billion euro tranche is paid out.
German Finance Minister Wolfgang Schaeuble told coalition
members of parliament on June 8 that Greece needed an additional
90 billion euros in a second rescue package that will get the
country through 2014.
Euro zone sources said the 90 billion euros would be the
amount of financing to be shared between the euro zone, the IMF,
and the private sector. Greek privatisation revenues of roughly
30 billion euros would come on top of the 90 billion, adding up
to a total of around 120 billion euros in new financing.
HOW MUCH WOULD THE EURO ZONE/IMF HAVE TO CONTRIBUTE?
The exact breakdown is not agreed yet, because it depends on
the private sector's contribution, and that is still unclear.
One source estimated the potential size of new loans from
the euro zone and the IMF at between 40 and 60 billion euros.
They would be divided as usual -- the IMF adding 50 percent of
what the EU is lending.
BILATERAL LOANS OR EFSF?
The European part of the money would come from the European
Financial Stability Facility (EFSF). Euro zone officials say it
was only because the EFSF did not yet exist when the initial
Greek package was put together that bilateral loans were used
for the first bailout.
The EFSF is the favoured vehicle because in this way euro
zone governments do not have to raise the cash on the market
themselves -- they just guarantee EFSF borrowing.
The European Financial Stability Mechanism (EFSM), a
separate fund which the European Commission is in charge of, is
also likely to contribute.
WILL NEW LENDING BE AGAINST COLLATERAL?
Finland's parliament has made clear that any new loans
extended to euro zone countries in trouble would have to be
issued against collateral. Other countries do not insist on this
OTHER THAN EU/IMF, WHERE WOULD THE NEW MONEY COME FROM?
- Greek privatisation. The euro zone would like some of the
financing to come from Greek privatisation revenues, which are
not easy to estimate in size or time with great certainty.
Athens has pledged to sell 50 billion euros worth of state
assets by 2015, but the programme is likely to be back-loaded.
- Private sector involvement. For several euro zone
countries, notably Germany, some form of private sector
involvement is a must if Greece is to get more loans, so that
the taxpayer is not the only one shouldering the burden.
HOW WOULD PRIVATE BONDHOLDERS BE INVOLVED?
One option is that banks would roll over their Greek debt as
it matures, replacing shorter maturity bonds in their portfolios
with longer maturity paper, or what some officials call the
Vienna initiative combined with reprofiling of debt.
Under this option banks would only buy the new bonds once
the old ones matured. This would mean that existing bond
contracts are honoured and there is no worsening of conditions
for investors -- therefore no reason for rating agencies to
declare it a default. France backs such a solution.
But Germany has proposed the bolder idea of a Greek bond
swap. Investors would be offered the possiblity of exchanging
over a period of time outstanding Greek bonds for ones with
maturities extended by seven years.
According to that idea, to give banks an incentive to switch
to the new, longer maturity bonds, the ECB could accept them as
collateral, while rejecting the old ones.
Such an operation would be risky, as it would certainly
entail rating downgrades for Greek debt, one euro zone source
said. Berlin, however, believes downgrades would stop short of a
"default" rating, and would not therefore trigger payouts on
credit default swaps.
The ECB opposes the bond swap idea as too risky.
The head of Moody's sovereign ratings group said on June 7
it was hard to see how a private sector rollover of Greek debt
would be truly voluntary and it would therefore likely
constitute a default. Fitch's head of sovereign ratings
expressed a similar view on June 9.
While there is no good argument to convince banks to agree
to such a plan, euro zone sources stress it would be very
difficult, if not impossible, to get the consent of several euro
zone countries like Germany, Finland, Slovakia or the
Netherlands to lend more to Greece if private banks are not in
any way involved.
(Additional reporting by European bureaux)
(Reporting by Jan Strupczewski, editing by Mike Peacock and