German Government Weighs `Comprehensive' Plan on Greek Debt, Die Zeit Says
Jan. 19 (Bloomberg) -- Julian Callow, chief European economist at Barclays Capital, discusses Portugal's sale of 750 million euros ($1 billion) of 12-month bills to ease the country's debt crisis. Callow, speaking with Deirdre Bolton on Bloomberg Television's "InsideTrack," also talks about the German government's consideration of a plan that would help Greece buy back its debt. (Source: Bloomberg)
The German government is considering a plan to help Greece buy back its debt as part of a package to stem the euro-area crisis, the Die Zeit newspaper reported.
Greece would be allowed to buy back government bonds with funds from the 440 billion-euro ($593 billion) European Financial Stability Facility made available to Greece “with favorable interest conditions,” Die Zeit said in an e-mailed release today, without saying where it obtained the information. In exchange, the German government wants Greece to make new pledges on reducing its budget deficit and debt, Zeit said.
“We’re not working on a restructuring of Greek debt,” German Finance Ministry spokesman Bertrand Benoit said in an e- mailed statement, denying the report. Greece’s government also rejected the report, saying its position on debt restructuring is unchanged and there is no discussion on the issue.
European Union governments will assemble a “comprehensive package” to tackle the sovereign debt crisis by March, German Finance Minister Wolfgang Schaeuble said Jan. 13. Purchases of outstanding Greek debt and lower interest rates on rescue loans as well as aid for Portugal and guarantees against excessive debt are all being considered, four people with direct knowledge of the talks told Bloomberg News last week.
‘Elegant Solution’
“Giving the ability to the EFSF to conduct bond buybacks would be in our view the most substantial and comprehensive response to date,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “This is an elegant solution as it is based on the market pricing of the chance of default rather than imposing on the market a specific haircut and would unlikely trigger a credit event.”
Greece led a decline by the bonds of the euro-region’s most indebted countries after the report. German 10-year bunds also declined, pushing the yield up to the highest since April.
The Greek 10-year bond yield increased 30 basis points relative to similar-maturity bunds as of 10:56 a.m. in London, leaving the yield spread at 863 basis points. The yield on Portugal’s 10-year bonds rose 13 basis points to 7.2 percent. Irish 10-year yields climbed 14 basis points to 9.02 percent.
The dollar fell to an eight-week low against the euro earlier on speculation a sluggish recovery in the U.S. housing and labor markets will deter the Federal Reserve from raising interest rates. The dollar fell 0.6 percent to $1.3463 per euro as of 8:52 a.m. in London after reaching $1.3507, the lowest since Nov. 23.
Loans vs Guarantees
Under the plan, the EFSF rescue fund should consist entirely of loans from euro-member states and not a mix of loans and guarantees as at present, Die Zeit reported. That would allow the program’s full 440 billion euros to be made available as opposed to the roughly 250 billion euros under current arrangements, it said.
The EFSF would be able to buy bonds of threatened euro states under the revamped plan, Die Zeit said. “And the interest rates, at which it helps them, should be as low as possible,” the newspaper said.
“This shows that they are now thinking in the right direction, to be more decisive and proactive as opposed to reactive,” Kurt Lauk, who heads a business lobby group within Merkel’s Christian Democratic Union party, said of the buyback plan in an interview.
To contact the reporter on this story: Leon Mangasarian in Berlin at lmangasarian@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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