Europe Prepares for Greek Aid Vote

Germany wants to avoid two-step vote on rescue, bond swap.

Germany wants euro-area finance chiefs discussing the Greek crisis next week to avoid splitting consideration of a 130 billion-euro ($171 billion) rescue and a bond swap of the nation’s debt, coalition lawmakers were told.

As long as Greece meets conditions for the aid, the finance ministers gathering in Brussels will probably approve the package along with the debt exchange, three German officials involved in a telephone briefing by German government officials said. A Finance Ministry spokesman declined to comment.

Wrangling among euro-area finance ministers on a Feb. 15 conference call over how to reduce Greece’s debt load and tighten control of the aid raised the prospect of a two-step process, according to two people familiar with the talks. In that scenario, the ministers’ Feb. 20 gathering in Brussels would be limited to kicking off the bond exchange and deferring decision on the rest of the bailout funds.

“We expect the Greeks to rise to their responsibilities,” German Deputy Finance Minister Steffen Kampeter told a group of lawyers in Hamburg yesterday. “This coming Monday, we will see whether Greece delivers or whether we will be forced to decide on another course of action, one that is not desired.”

As recriminations fly between Greece and its northern European creditors, the clock is ticking toward a March 20 bond redemption when Greece must pay 14.5 billion euros or trigger the first sovereign default in the euro’s 13-year history.

German Chancellor Angela Merkel put her crisis-fighting agenda on hold today as she abandoned a visit to Italy where she was due to meet Prime Minister Mario Monti, to focus on domestic politics as German President Christian Wulff quit. She will hold a three-way phone conversation with Monti and Greek Prime Minister Lucas Papademos, and the Italian and German leaders will stay “in close touch” before the finance ministers’ meeting, Monti’s office said in an e-mailed statement.

The timetable of the Brussels gathering on Feb. 20 has now been brought forward to 3:30 p.m. in the Belgian capital instead of the usual 5 p.m.

Investors have sent the euro and global stocks higher as they anticipate the culmination of the seven-month effort to complete a second bailout for Greece. The currency was little changed today at $1.3139 as of 12:18 p.m. in Berlin after rising yesterday for the first time in five days.


Austerity Measures

While Greek lawmakers this month passed austerity measures that were required for the aid, the euro ministers wrestled with the latest setback, hearing on their call that Greece would miss debt-reduction goals. Without further measures to close the funding gap, Greece’s debt would fall to 129 percent of gross domestic product in 2020, missing a target of 120 percent, said three people familiar with the talks who declined to be named because they are still in progress. Last year, the level was about 160 percent.

European authorities are discussing charging it lower rates, the three officials said. Greece obtained its first, 110 billion-euro loan package in May 2010 at rates averaging 5 percent. Euro governments have already cut that figure once, to about 4 percent in March 2011.

Central bankers have also indicated that the ECB could funnel future profits from its Greek bond holdings to national governments and on into the crisis program. They have agreed that they “don’t wish to make a profit on Greece,” ECB Governing Council member Luc Coene of Belgium said this week. An ECB spokesman declined to comment.

More controversial is a proposal for national central banks to take part in the private exchange by accepting losses on Greek bonds in their investment portfolios. France is virtually alone in backing that idea, one of the officials said.

The ECB is swapping its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring, three euro-area officials said. EU discussions on a proposal to set up an escrow account to ensure that Greek aid money goes to paying creditors are still under way, a Greek government official said in Athens today.

The multiple scenarios led to a possible two-step decision -- authorizing the bond exchange next week and then completing the 130 billion-euro public aid program -- that would raise political risks by requiring two votes in some national parliaments.

It would also turn a planned March 1-2 summit of European leaders into a showdown over Greece, after countries including the Netherlands and Finland called for delaying the full package until after Greek elections in April or later.


Bond Exchange

The bond exchange can only go ahead once governments authorize the European Financial Stability Facility to provide 30 billion euros, to be used in cash or collateral as an incentive to investors.

Euro officials are targeting a window of Feb. 22 to March 9 to complete the transaction, the German lawmakers were told. Greece will submit legislation to parliament on Feb. 21 to allow collective action clauses that could force bondholders resisting a debt swap to take part in the exchange, Naftemporiki reported, without citing anyone.

Greek leaders have no more “wiggle room” even as they seek to maintain a minimum level of public support going into elections that may take place in April, Deutsche Bank economists Gilles Moec, Marco Stringa and Mark Wall wrote in a note to clients yesterday.



Bloomberg News


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