* Talks on private sector role in Greece "near square one"
* Private creditor buy-in to be at best around 15 bln euros
* EU finance ministers to discuss situation on Monday
By Luke Baker
BRUSSELS, July 8 Efforts to secure the private
sector's involvement in a second bailout of Greece have stalled
and there is little chance of reaching the 30 billion euros
target figure, euro zone diplomats said on Friday.
Germany, the Netherlands and other northern euro zone states
demand the private sector must bear a portion of the cost of a
second package of loans to Greece so that the burden does not
fall solely on the public sector and taxpayers.
The aim is to get private creditors -- banks, pension funds
and insurance companies -- to provide around 30 billion euros
($43 billion) to a total package of around 110 billion euros by
rolling over their holdings of Greek bonds when they mature.
The remainder would come from Greek privatisation receipts
and from the EU and IMF, which would stump up around 60 billion.
But two weeks of negotiation among EU officials, the
European Central Bank and bankers represented by the Institute
of International Finance (IIF) have made almost no progress,
with only the outline of private sector proposals on the table.
"We may not be all the way back at square one, but we're
pretty close," said one senior euro zone official.
"It's pretty hard to see how they're going to get the
private sector involvement the Germans want."
Euro zone finance ministers will discuss the state of play
at a meeting in Brussels on Monday, with little expectation that
a breakthrough will come soon. Greece is hoping to secure a
second package by mid-September.
One euro zone diplomat told reporters on Friday that the
talks might end up securing private sector involvement of 15
billion euros, and touted the figure as a success, but it
remains unclear whether that can even be attained.
"Fifteen billion out of 110 billion, it's already quite a
lot, it's really good," the diplomat said, playing down concerns
about how the negotiations with bankers were going.
Talks with the IIF initially focused on a French proposal
for banks and other creditors to roll over up to 70 percent of
their Greek government bonds maturing before the end of 2014 by
purchasing new Greek bonds with a 30-year maturity that would be
guaranteed by other AAA-rated securities.
But it was not clear that the major credit ratings agencies
would approve such a rollover as voluntary, regarding it instead
as a default, or selective default at best, which would have
severe repercussions on financial markets.
After talks in Rome on Thursday, the IIF said it was now
looking at the possibility of a buy-back of Greek bonds, and
there is also a German proposal for a bond exchange, with
current bonds being swapped for longer-dated securities,
something ratings agencies have said would constitute default.
HOW VOLUNTARY IS VOLUNTARY?
ECB President Jean-Claude Trichet said on Thursday, after
the central bank decided to increase euro zone interest rates by
a quarter-point to 1.5 percent, that no one should imagine the
private sector's involvement was guaranteed.
"You cannot presume that it is normal ... to have some kind
of private sector involvement," he said, adding that his
position remained that any involvement by private creditors had
to be absolutely voluntary.
That is the broad position across the euro zone, but the
Dutch finance minister, Jan Kees de Jager, said on Thursday that
if the private sector was not going to come up with a sizeable
contribution voluntarily, it should be compelled to take part.
"We need to accept that a voluntary contribution is not
realistic," he told Dutch newspaper Het Financieele Dagblad.
"If a compulsory contribution from the banks leads to a
short and isolated rating event (a credit rating downgrade),
then that is not so bad."
When EU finance ministers meet on Monday and Tuesday, credit
ratings agencies will be one of the issues under discussion,
with growing frustration in Europe at the role played by
Standard & Poor's, Moody's and Fitch.
Moody's this week downgraded Portugal's debt by four notches
to "junk status", a move that shook financial markets and drew
the ire of EU leaders, who said it was unjustified when Portugal
is undergoing an EU/IMF structural adjustment programme.
While it is hard to see what leverage the EU can gain in
criticising the ratings agencies there is now discussion about
the possibility of establishing a European credit rating agency.
Finance ministers will also discuss the results of stress
tests on 91 European banks that are due to be released on July
15 by the European Banking Authority.
An EU finance document obtained by Reuters on Friday showed
that EU member states stood ready to provide support to any
banks that fail the tests and cannot raise sufficient capital
from investors to strengthen themselves.
(Additional reporting by Julien Toyer, John O'Donnell and Ilona
Wissenbach in Brussels, editing by Mike Peacock)