BRUSSELS, June 9 (Reuters) - 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.
Policymakers aim to have a deal ready in time for a June 20 meeting of EU finance ministers.
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.
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.
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.
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.
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.
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 condition.
- 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.
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 Catherine Evans)