EUROZONE governments have kicked off a series of meetings with their banks to persuade them to voluntarily roll over their Greek debt and buy more time for the stricken sovereign.
But German chancellor Angela Merkel has also warned voters and opposition parties that there is a limit to private sector burden-sharing. She said yesterday that too harsh a haircut for bondholders could “spark contagion in Europe that I don’t want to be responsible for”.
Despite Merkel’s attempt to play down expectations, however, the region’s governments have begun the process of securing support from private investors in Greek debt in a desperate bid to avoid a “credit event”, or default.
Ratings agencies have warned that any deal with bondholders would be considered a default if it has insufficiently favourable terms or if it is not wholly voluntary.
That could make it difficult for the ECB to accept Greek debt as collateral in return for emergency loans, effectively freezing Athens’ banks out of the liquidity support on which they rely.
The EU now has until July to put together a second bailout deal, with officials setting a deadline of a 11 July summit for a new bailout package. However, past deadlines have come and gone without an agreement. Most estimates put the cost of the deal around €110bn (£98.3bn), the same as Greece’s first rescue last year.
The scramble to bring banks on board comes as Barclays Capital sent a note to investors estimating that most of Greece’s sovereign debt is now owned either by governmental bodies or by Greek banks.
The proportion of Greek debt owned by its national banks, fellow Eurozone governments, the ECB and the IMF has been rising as private debt matures. That will make it easier to secure a voluntary rollover deal, since Greek banks and the EU have the most to lose from a default.