Germany considering extra €10bn bailout for Greece
Germany is considering the use of extra eurozone bailout funds of up to €10 billion to finance a bond-buyback scheme for Greece.
"We all agree that the funding gap could be filled through a bond buy-back scheme," German finance minister Wolfgang Schaeuble told journalists in Berlin on Wednesday (21 November), after a 12-hour-long meeting of eurozone finance ministers failed to reach a compromise with the International Monetary Fund (IMF) on how to keep Greece afloat.
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Schaeuble said the buy-back scheme - which would be funded through the temporary eurozone bailout fund (EFSF) to the tune of €10 billion - would not be an additional costs for German taxpayers, as the loan guarantees have already been committed to the EFSF.
Earlier on Wednesday, the German opposition threatened to boycott the country's 2013 budget until Chancellor Angela Merkel "reveals the real cost of the Greek bailout" and admits that taxpayers will have to take losses on German loans.
The IMF in the past weeks has been pressuring the Europeans to accept losses on their Greek holdings in order to lower the country's overall debt, which is currently at around 190 percent of GDP.
But the German government says that there can be no bailout payments at the same time as an admission that these loans will never be paid back.
It maintains that such a solution would be in breach of German and EU law.
According to one participant in the talks, a recent experts' report which should have spelled out what Greece's debt projection is until 2020 - when its debt is supposed to reach 120 percent of GDP - was still "fuzzy on the details."
For his part, Eurogroup chief Jean-Claude Juncker said in the early hours of Wednesday, "at this hour we cannot run numbers properly anymore."
Merkel's spokesman in Berlin said the Eurogroup meeting was not been a "failure" and that only "technical details" remained to be ironed out before next meeting on Monday.
But the bond-buyback scheme raises other questions, ING economist Carsten Brzeski told this website.
"It is still unclear what they will buy back, bonds that have already been exchanged during the debt restructuring or bonds held by the European Central Bank?" he said.
Earlier this year, banks and investment funds agreed to accept losses of 70 percent on their investment in return for new bonds issued by the Greek government.
But if a buy-back scheme was again targeting their bonds to lower Greece's debt, this would amount to a new haircut, Brzeski explained.
The other holder of about €40-60 billion worth of Greek bonds is the European Central Bank (ECB). But there are legal limitations to how low a price the ECB can sell bonds for.
"They are really looking for crumbs. Debt restructuring or a third bailout would be the real solution. That's why it took 12 hours yesterday without any agreement," Brzeski said.
For Merkel, neither of the two options can be admitted in public before general elections next autumn.
One possible compromise next Monday could be to agree on how to fund the Greek deficit gap for two more years after the bailout programme ends in 2014 and to "have a tacit deal on debt restructuring but keep silent for now," Brzeski said.
The German opposition will continue to press Merkel on the issue.
Already on Wednesday she had to defend the "political decision of keeping Greece in the euro" while Greens, leftists and Social-Democrats urged her to stop fudging the issue and to give clear answers.