German objections to suffering losses on official loans to Greece have forced the euro zone to explore more complex means of helping Athens cope with its debt mountain.
After almost 10 hours of intense talks on Tuesday night, euro zone finance ministers failed to agree on how fast to cut Greece’s debt pile. They called a further meeting next week to settle differences and release 44 billion euros of long-overdue aid.
The main stumbling block was Berlin’s refusal to back “illegal” cuts to the interest rates on bilateral loans to Greece or return the profits from the European Central Bank’s purchases of Greek bonds, said people involved in the talks.
An alternative proposal involves offering 10 billion euros of extra loans to Athens from the European Financial Stability Fund, the euro zone’s temporary bailout pot. The option is seen as a leading contender for a compromise deal.
This extra lending would support a more ambitious scheme to purchase Greek bonds held by private investors, part of a package of debt relief measures to bring down Athen’s debt to significantly below 120 percent of economic output by 2022.
Sanctioning a new 10 billion euros of bailout loans would pose a considerable political challenge to several countries and require the backing of restless parliaments in Germany, Finland and the Netherlands. In part to address the inevitable political concerns, officials are drawing up options to back the new loans with collateral from Greece’s privatization program, which aims to raise 50 billion euros.
Berlin’s demand that any new measures must not represent a fiscal transfer to Greece – which the German government sees as illegal – means that the degree of support given will vary country by country.