A German compromise plan to resolve a dispute with the European Central Bank over the Greek rescue that was reported by Der Spiegel magazine is no longer on the table, according to a government source.
Der Spiegel had reported ahead of its Monday issue that the German finance ministry called for a beefed-up version of Europe’s temporary bailout mechanism lending to Greek banks to insure they have adequate collateral with the ECB.
It would boost the effective lending capacity of the Emergency Financial Stability Facility (EFSF) to 440 billion euros ($629 billion) and see member states double the amount of guarantees they provide the fund.
Germany’s share of guarantees would climb to 246 billion euros from 123 billion euros, according to the report.
But a German official, who spoke on condition of anonymity, said that while “several options” were being debated to involve private creditors in an Athens rescue, the reported proposal was “no longer on the agenda”.
The source added that the initial plan had differed from the reported proposal in “key aspects”.
German officials say they seek a plan with as few “unwanted side effects” as possible.
The ECB has repeatedly warned that requiring creditors to swap existing Greek debt for new bonds with longer maturities could amount to a default, something which could send shock waves through the European and global financial systems.
German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed Friday to a plan through which private bondholders could volunteer to buy new government bonds to replace ones that matured.
This “rollover” option was favoured by the ECB and France, since it avoids the risk of rating agencies declaring Athens in default.
Germany had previously called for full-scale debt restructuring but Merkel appeared to back down after the meeting with Sarkozy.
Eurozone finance ministers were to meet in Luxembourg later Sunday for talks on saving Athens from default as early as next month.
Merkel said in a separate interview released Sunday that she was upbeat about the eurozone despite the Greek crisis.
“We are already far better equipped now in Europe,” Merkel told Super Illu magazine, referring to austerity measures taken by debt-laden member states.
But she said the countries sharing the euro still had to work through “significant failures” and “sins of the past” in terms of fiscal discipline.
Merkel said Greece had “achieved a great deal in the last year — we should recognise that”.
“It has cut new borrowing by five percent — that is remarkable savings but it is not enough,” she said.
Berlin, June 20 2011, (AFP)
