European governments and the International Monetary Fund would lend as much as an extra 45 billion euros ($65 billion) to Greece under an expanded plan to avoid the euro area’s first sovereign default, two people with direct knowledge of the talks said.
European estimates put Greece’s 2012-14 financing gap at as much as 170 billion euros, the people said. It would be filled by the loans, plus around 57 billion euros in unspent aid from last year’s bailout, roughly 30 billion euros in asset-sale proceeds and about 30 billion euros in rollovers by creditors.
Structuring the rollovers remains the most sensitive part of the package, with European Central Bank President Jean-Claude Trichet warning on a teleconference of euro-area officials yesterday that German calls for a debt exchange might lead rating companies to declare Greece in default, the people said.
“It’s hard to imagine something that’s truly voluntary in the current climate,” Bart Oosterveld, managing director for sovereign risk at Moody’s Investors Service, told reporters in Frankfurt today. “The default risks for peripheral European countries continue to increase.”
Greek bonds fell for third day and the price of insuring Greek debt against default reached a record as 5,000 public workers struck against the asset-sales and budget-cut plans demanded by Europe and the IMF as conditions for aid.
Chants of “no, won’t sell” rang out outside the Finance Ministry in Athens as Prime Minister George Papandreou’s Cabinet weighed the emergency plan, which includes the sale of stakes in Hellenic Postbank SA and Agricultural Bank of Greece (ATE) SA.
Chancellor Angela Merkel of Germany, the biggest aid contributor, needs to saddle bondholders with part of the cost to persuade the German parliament to offer new loans in another three-year package to a country that has veered toward financial meltdown even after getting a 110 billion-euro lifeline in 2010.
Greek sovereign debt has been the world’s most expensive to insure since April, when it surpassed Venezuela. Moody’s puts the chance of a default at 50 percent in the next five years.
Merkel tried to sell German lawmakers on another Greek package yesterday, after returning to Berlin from a White House meeting in which President Barack Obama said Germany holds the key to preventing an “uncontrolled spiral of default” in Europe.
Germany wants bondholders to buy around 30 billion euros of new Greek bonds to replace maturing ones over the next three years. Any arrangement that appears to force private investors to maintain their Greek holdings might be ranked as a default, sending losses cascading through the banking system.
It would be “an enormous mistake to embark on a decision that would trigger a credit event,” Trichet told reporters today in Frankfurt. “We exclude all elements which are not voluntary.”
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