Germany’s biggest banks and insurers, including Deutsche Bank AG and Allianz SE, signaled a willingness to roll over maturing Greek debt if governments offer guarantees and other European lenders also participate, according to five people with knowledge of the situation.
Talks between financial companies, the finance ministry and central bank officials resumed at 10 a.m. Frankfurt time today after a June 22 gathering was hampered by storms, preventing participants from traveling to attend, said the people, who declined to be identified because the information is private.
German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed last week to pursue a Vienna-style solution, encouraging creditors to replace expiring bonds that would buy time until Greece’s austerity program bears fruit or a permanent rescue fund kicks in from mid-2013. A linchpin in the effort to save the first euro-area country from default would be a pledge by the private sector to share the burden with taxpayers.
“There will be some participation because banks and insurance companies know that public opinion is demanding that private investors have to contribute to the rescue package,” said Konrad Becker, a Munich-based analyst at Merck Finck & Co. “They know that they are depending on state help in any case of emergency that may come in the next two or three years because of the euro and debt crisis.”
Under discussion at today’s working-level talks is how much German banks and insurers will contribute in total and whether each company’s share will be based on its size and financial strength or its current Greek holdings, one of the people said. The meeting may be followed next week by meetings with top executives and policy makers, the people said.
The banks and insurers have been given until June 26 to provide details of their Greek sovereign exposure as well as proposals on how much they are willing to roll over, the people said.
A year after the first bailout for Greece that aimed to stop the spread of the debt crisis, the country remains mired in a third year of recession, shut out of financial markets and saddled with the biggest debt load in the euro’s history.
European estimates put Greece’s 2012-14 financing gap at as much as 170 billion euros ($242 billion). It would be filled by about 45 billion euros of loans, plus around 57 billion euros in unspent aid from the 2010 bailout, roughly 30 billion euros in asset-sale proceeds and about 30 billion euros from creditors.
France and the Netherlands have also begun talks with banks and insurers on getting private investors to participate in a Greek rescue. France held meetings with financial industry executives on June 22, and the Netherlands has also initiated discussions with the country’s financial industry on a voluntary rollover of outstanding Greek debt, people familiar with the matter said at the time.
“If EU governments would guarantee the debt, banks and insurers would roll over everything, so it’s not realistic to expect state guarantees,” said Becker. “Therefore, it will be a minor part of the outstanding Greek sovereign debt owned by private investors that is rolled over.”
Holders of Greek debt have a “very high interest” in achieving a solution to the current crisis, German Finance Ministry spokesman Martin Kotthaus said today.
Talks with banks and insurers on rolling over their Greek debt are ongoing and “discretion” is required during the negotiations, Kotthaus told reporters in Berlin.
Asked whether the government will consider incentives to encourage bondholders to roll over the debt, Kotthaus said that it was in their own interests to do so.
A French official said on June 22 that details of a Greek debt rollover package will be completed by a July 3 meeting of European finance ministers.
Investors say European banks haven’t raised sufficient capital or cut loans enough to withstand the contagion that may follow a Greek default. While European lenders reduced their risk tied to the country by 30 percent to $136.3 billion last year by not renewing loans, writing down the value of debt and shifting it off their books, they still have almost $2 trillion linked to Portugal, Ireland, Spain and Italy, figures from the Bank for International Settlements show, leaving them vulnerable if the crisis spreads.
German lenders’ total foreign claims on the Greek public sector totaled 9.91 billion euros in March, excluding aid provided by the country’s state development bank KfW Group, according to Bundesbank data.
Deutsche Bank, Commerzbank AG, DZ Bank, HVB Group, WestLB AG, Landesbank Baden-Wuerttemberg, WGZ Bank, DekaBank Deutsche Girozentrale, HSH Nordbank AG, Allianz and Munich Re are among the companies invited to the talks, according to the people. Spokespeople for the banks and insurers either declined to comment or couldn’t immediately be reached by phone.