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Tension High within Eurogroup as Greece Requires More Aid

A special Eurogroup meeting scheduled for tomorrow will feature Finance Ministers from the euro-zone.  They will discuss the tense situation concerning modalities, timeline and figures of the second aid plan to Greece.
No one can deny any longer that an additional bailout plan is needed to save Greece from insolvency, which would have a disastrous chain effect on Europe and put world financial stability at risk. What is disagreed upon is not if, but how to intervene. Germany wants private entities, meaning banks, to be required to do their part. German Finance Minister Wolfgang Schauble has proposed extending Greek bonds by seven years, while his Belgian counterpart Didier Reynders yesterday put the contribution of private bodies at 25 billion euros out of an estimated total of 80 billion euros.
The figures are very likely but have yet to be confirmed, especially the part which could come ”in a friendly manner” from banks, pension funds and insurance companies. The ECB has warned against the risks connected with involving private bodies, which is why it has requested that specific restrictions be laid down. ”The participation,” said Jurgen Stark, member of the executive committee, ”must be entirely voluntary and not translate into failure.” ECB chairman Jean-Claude Trichet will insist on this concept on Tuesday within the Eurogroup, while the candidate to take his place, Governor Mario Draghi, will hold his first public hearing before the European Parliament a few hundred metres from the Council’s offices. Over the past few hours the German proposal has gained approval.
The European Commission did not reject it out of hand since – according to the spokesman for EU economic affairs commissioner Olli Rehn – the involvement occurs on a ”voluntary” basis, on the model of what happened in the past for Eastern European countries having problems with the so-called ”Vienna Agreement”. What Brussels considers important is that the operation will not be seen by the markets as a default. Even Eurogroup chairman Jean-Claude Juncker is not against the German solution so long as it doesn’t enter a sort of collision course with the ECB.
Juncker said that Greece needs ”a ‘soft’, voluntary debt restructuring”. Others prefer to call it a ”rollover”: an operation which makes it possible to extend an existing financial commitment which has already come to term. The latter are simply semantic subtleties which clash with the inflexibility of rating agencies. If they were to label a specific operation as ”a default event”, there would be no bailout plan that could come to the rescue. And the outlook for a disastrous domino effect on the weakest economies of the euro-zone, Portugal and Ireland first and foremost, would become a tragic reality.

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