Following eight hours of talks on Tuesday evening (11 July), finance ministers from the 17 countries that share the common EU currency, are discussing two options in a second Greek bailout: to buy Greek bonds on the open market (bond buybacks) and to rollover Greek debt held by the private sector.
The bond buyback option resurfaced yesterday after it was thrown out earlier this year by German and Dutch opposition to increasing the exposure of their taxpayers to Greek sovereign debt. The two countries reportedly said they would reconsider their position.
But ministers kept their cards close to their chest. EU economic Commissioner Olli Rehn said that preparations on a new Greek bailout would take shape when the next tranche of aid is disbursed in September.
His instructions appear to be coming from higher ranks as the new head of the IMF, Christine Lagarde, warned yesterday that Greece needed to do more to tighten its budget deficit before a second bailout could be presented.
Euro group chief Jean Claude Juncker said he could envisage an emergency meeting of finance ministers before the summer break at the end of July.
Buybacks were reintroduced after intense infighting over the role of the private sector in a Greek rescue. France had previously proposed to roll over 70% of Greek debt maturing before the end of 2014.
Though their proposal was met by fierce opposition from the sector, the French finance minister François Baroin, said this option was still on the table.
Eurogroup president Junker said “there will be private sector involvement” in Greece’s next bailout and added that the details would be worked out shortly.
The ECB is also against any form of private sector involvement for fear that this would lead credit rating agencies to declare Greece bankrupt.
The central bank is growing tired of buying Greek debt at a low interest rate to keep the economy from going under. Their policy of buying Greek sovereign debt has little backing in the EU. Germany which has a 27% stake in the ECB is particularly upset.
Nevertheless, conclusions from yesterday’s talks were left vague as officials agreed to enhance the scope of the temporary rescue facility currently footing a Greek and Irish bailout, the European Financial Stability Facility (EFSF).
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