European Union officials may requireGreece to provide collateral for aid as policy makers struggleto prevent the euro area’s first sovereign debt restructuring,said a person with direct knowledge of the situation.
Expanding the 110 billion-euro ($158 billion) lifelineGreece received last year may mean that assets or revenue fromasset sales are used to secure extra funds, the person said.Demanding collateral, an idea floated last year by Finland, mayhelp avoid a political backlash against bailouts.
European Union finance officials, who held an unannouncedmeeting last night in Luxembourg, are preparing the help to easea debt burden that some investors say will lead to arestructuring. Other steps may include lower interest rates orlonger maturities on bailout loans, said Norbert Barthle, budgetspokesman for German Chancellor Angela Merkel’s ruling party.
“We’ll just have to bite the bullet,” Barthle said in aninterview today from his district in the state of Baden-Wuerttemberg. “We need to help Greece help itself. What’s thealternative? We don’t want to be pushed over the edge intorestructuring.”
Greek bonds have tumbled since mid-April when Germanofficials indicated they wouldn’t oppose a restructuring. Greecedenied a report in Germany’s Spiegel magazine yesterday thatsaid it threatened to withdraw from the euro.
‘Further Adjustment’ “We think that Greece does need a further adjustmentprogram,” Luxembourg Prime Minister Jean-Claude Juncker, whochairs the group of euro-area finance ministers, said afteryesterday’s gathering. “We’re not discussing the exit of Greecefrom the euro area. This is a stupid idea -- no way.”
Greece has already received an extension on bailout loansthis year and policy makers in Athens say another lengtheningwould help avoid a broader restructuring.
Increasing aid may run into opposition in Germany andFinland, where bailouts have sparked a backlash. Finnish FinanceMinister Jyrki Katainen, who suggested seeking collateral forIreland for its November bailout, is leading talks to form agovernment that may include the euro-skeptic True Finns party.
The True Finns oppose the bailout for Portugal and see aGreek default as inevitable.
“It’s a question of time before a default will happen,”Party leader Timo Soini told Bloomberg Television May 5. “Thebailout doesn’t work; we have seen that in Greece.”
Speculation Dismissed European finance chiefs and the Greek government dismissrestructuring as a possibility. “We were excluding therestructuring option which is discussed heavily in certainquarters of the financial markets,” Juncker said.
The euro slid after the Spiegel report, declining 1.5percent in New York trading yesterday to $1.4316. U.S. stockspared gains and Treasuries rose as reports of the meeting stokedspeculation that a restructuring may be in the works.
Greek Prime Minister George Papandreou said the report of apossible euro exit was made up and the government was handlingthe country’s debt in the best way possible, Kathimerininewspaper reported.
Abandoning the euro would have “catastrophic”consequences, Greek Finance Minister George Papaconstantinoutold Italian newspaper La Stampa. Public debt would double,consumer spending power would be “shattered” and the countrywould sink into a “war-like recession,” he said.
Speaking to reporters in Athens today, Papaconstantinousaid the government is determined to implement the bailout planto overhaul the economy. “Markets are still jittery and we willdo all that’s necessary to calm them.”
EU Agenda Finance chiefs from France, Germany, Italy and Spain andEuropean Union Economic and Monetary Affairs Commissioner Olli Rehn also attended last night’s session.
Beyond Greece, the agenda included the Portugal bailout, asuccessor to European Central Bank President Jean-Claude Trichet, whose term ends in October, and details of the crisis-fighting program to take effect in 2013, a separate Europeanofficial said.
Papaconstantinou attended and briefed on the state of theGreek economy, the Athens-based Finance Ministry said in astatement, adding there was no discussion of Greece’s status asa member of the euro area.
The meeting came a year after the EU put together anunprecedented 750 billion-euro backstop on a Sunday night inBrussels to end the debt contagion that began in Greece. Ithasn’t worked so far. Ireland and Portugal have since beenbailed out and Greece has been forced to fend off suggestionsthat it was headed to default.
Restructuring More Likely The Wall Street Journal, citing an unidentified senioreuro-zone government official, reported today that Greece hasasked its euro-zone partners to ease the country’s deficittargets. Separately Kathimerini said the Greek governmentrequested at yesterday’s meeting an extension of the bailoutprogram by two to four years, without saying how it got theinformation.
“The likelihood of a restructuring of Greek market debtthis year has gone up,” David Mackie, London-based chiefEuropean economist at JPMorgan Chase & Co., said in a noteyesterday.
Greece has about 330 billion euros in outstanding bonds,according to a May 5 report by UBS AG. The Swiss bank estimatesthat 22 percent is held by Greeks and Cypriots, the ECB has 19percent and the EU and International Monetary Fund together haveabout 11 percent.
About 22 billion euros will mature this year and 33 billioneuros next year, according to an April 29 ING Groep NV report.
Greek bonds have declined since the 2010 bailout, withyields on two-year notes reaching a euro-era record of 26.27percent on April 28. The extra yield investors demand to holdGreek 10-year debt over comparable German bonds widened 4 basispoints to 1,233. Greece was supposed to return to markets nextyear even as its debt peaks at 159 percent of gross domesticproduct.