Germany to pitch compromise to ECB on Greece: report

German Finance Minister Wolfgang Schaeuble intends to propose a compromise to the European Central Bank to permit private sector involvement in a second bailout of Greece, German magazine Der Spiegel said on Sunday.

The European Financial Stability Facility, the euro zone's bailout fund, would issue bonds and provide them to Greek commercial banks through the Greek government, Spiegel reported without citing the source of its information.

The Greek banks, which are heavily dependent on ECB funding, could then use the bonds as collateral to continue obtaining loans from the ECB in its money market operations.

This might remove a major obstacle to a private sector rollover of Greek debt, which the ECB has so far opposed on the grounds that Greek banks would be cut off from funding.

Credit rating agencies have warned they would probably classify any rollover scheme as a default, and the ECB has said a default would mean it was no longer able to accept Greek government bonds as collateral in money market operations.

There was no immediate comment from the ECB or the German finance ministry on the report by Spiegel, which said the proposal was developed by a 10-member group at the ministry.

A German government official, who declined to be named, told Reuters that the euro zone was discussing a variety of ways to involve private creditors in a new bailout, and at one point some aspects of the reported proposal had come up.

"There was an idea in Brussels that in some ways resembled the Der Spiegel account, but in other areas it was completely different," the official said.

On Friday, German Chancellor Angela Merkel and French President Nicolas Sarkozy said they had agreed in principle on a second bailout of Greece that would include private sector participation similar to the "Vienna Initiative," in which foreign banks pledged in 2009 to maintain their exposure to eastern European countries by rolling over loans.

Any Greek debt rollover would be complex and controversial, financially and legally, and key details have not been worked out. Euro zone finance ministers are expected to discuss the scheme at a meeting in Luxembourg on Sunday evening.

[Source: Reuters, Berlin, 19jun11]

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