Germany: Bond Holders Must Share Greek Burden

By PATRICK MCGROARTY, COSTAS PARIS and ALKMAN GRANITSAS

The Wall Street Journal.

BERLIN—Germany's parliament Friday approved a motion that private bond holders and the International Monetary Fund bear partial responsibility for any further aid to Greece, putting further pressure on Chancellor Angela Merkel's government to pursue measures that the European Central Bank has resisted.

Finance Minister Wolfgang Schäuble told lawmakers before his center-right coalition voted to support the motion that making private bond holders bear more risk in the case of a Greek default or restructuring was "unavoidable," and that it was hard to know how much more help Greece would need.

Philippe Lopez/Agence France-Presse/Getty Images

German Finance Minister Wolfgang Schäuble

Mr. Schäuble acknowledged that the ECB has discouraged Germany's calls for private investors to face losses from a Greek restructuring. On Thursday he acknowledged that France shares those concerns.

But Germany was working together with the ECB, the IMF and the European Commission to find a compromise that would include a "fair risk participation" for bond holders.

"If there are doubts about Greece's ability to pay back its debts," he said, "then the participation of the private sector in the solution to this problem is unavoidable."

The text of the new Greek aid plan the lower house of parliament approved Friday included a demand that the IMF and private lenders participate in any further aid for Greece.

"Parliament calls on the government only to support further tranches [of aid] and new financial assistance only alongside the financial participation of the IMF and [private investors]," the resolution states.

Mr. Schäuble also said it was difficult to calculate exactly how much more aid Greece will need, but that the country remains unlikely to be able to return to financial markets in 2012.

Greek Finance Minister George Papaconstantinou said Friday that Greece expects its euro-zone partners to cover its financing needs with a new loan for the next two or three years,

Speaking at a press conference, Mr. Papaconstantinou said there is an agreement in principle among euro-zone partners that private holders of Greek government bonds should participate in the country's new financing. But he added that there were "technical" issues relating to such a deal with private bond holders.

"The general framework in which we are moving is for coverage of [Greece's] borrowing needs for the next two, three years," he said. "There has to be some kind of participation from the private sector—something which has been accepted in principle by all—on a voluntary basis."

But he added that there are "a series of technical characteristics [to be resolved] so it can be done in a way that it doesn't create problems either in the Greek or other markets."

In May last year, Greece narrowly avoided default with the help of a €110 billion loan from its fellow euro-zone members and the International Monetary Fund.

But with Greece facing still prohibitively high borrowing costs on international markets, the European Union and IMF are now also discussing a new loan deal. That new loan could provide the cash-strapped country with as much as €90 billion in fresh aid over the next three years.

The final details will be thrashed out before a meeting of European finance ministers June 20, and will be formally approved at a European summit that will start three days later.

However, Mr. Papaconstantinou acknowledged how unpopular a further loan deal for Greece is with many electorates in Europe as their countries face their own fiscal problems.

"The governments of other countries are being asked to ask their parliaments to support Greece further. It is not a simple procedure when, in many countries there are deficit-cutting programs...increased taxes, a reduction in salaries," he said.