Schaeuble Backs Greek Bond Buyback Amid Euro Bloc Differences

Finance Minister Wolfgang Schaeuble said Germany favors allowing Greece to buy back as much as 10 billion euros ($12.8 billion) of its bonds after euro finance ministers early today failed to agree a deal on Greek debt.

While making “good progress” in the talks in Brussels, euro area leaders differed over how to plug a 14 billion-euro gap in a Greek debt-reduction package, Schaeuble told reporters in Berlin. Some states favor cutting interest on loans from Greece’s first aid package while Germany prefers a buyback of Greek bonds, Schaeuble said.

Chancellor Angela Merkel’s government views a reduction in interest paid by Greece as “not suitable,” he said. Germany wants to boost the temporary euro rescue fund, called the European Financial Stability Facility, by about 10 billion euros for a short period to allow it to buy back its bonds, Schaeuble said.

While ministers in yesterday’s talks agreed on the buyback option, they failed to agree on whether the proposal should fully cover Greece’s needs, Schaeuble said. Germany could not agree with its partners over the scope of a reduction on interest on loans made to Greece, he said. Schaeuble said he also rejected a proposal to tap 4.2 billion euros in profit from the European Central Bank’s Securities Markets Program to help Greece, citing Bundesbank misgivings.

Schaeuble said he’s confident that a “satisfactory” agreement will be reached on Greece at a third meeting of finance ministers in as many weeks on Nov. 26.

Greece currently pays interest on its loans equal to 150 basis points over the Euribor rate, said Schaeuble. Some finance ministers wanted to cut the interest “to almost nothing,” he said.

Germany’s KfW development bank refinances the loans it makes to Greece at 60 basis points above Euribor, meaning Germany cannot agree to a larger reduction without cost to the taxpayer, said Schaeuble.