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Eurozone toils to unlock Greece bailout No 2

15 June 2011, 22:49 CET
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Eurozone toils to unlock Greece bailout No 2

Juncker - Papaconstantinou - Photo EU Council

(BRUSSELS) - Eurozone chiefs struggled Tuesday to overcome deep divisions as to how far banks can be twisted into "voluntarily" backing Greece bailout No. 2 in the battle to avoid Athens going bankrupt.

Six-and-a-half hours of talks in Brussels ended with ministers organising another unscheduled meeting in Luxembourg for Sunday evening, ahead of planned discussions on Monday -- and ministers admitted a deal is in doubt even when European Union leaders gather for a June 23-24 summit.

One by one, they left Brussels EU headquarters without the answers markets want.

"Monday," said the chairman of the 17-nation currency Eurogroup, Luxembourg Prime Minister Jean-Claude Juncker; European Central Bank (ECB) chief Jean-Claude Trichet just smiled; EU economy commissioner Olli Rehn simply frowned.

German Finance Minister Wolfgang Schaeuble and France's Christine Lagarde were the same, and even the Greeks left with a "no comment".

The clock was ticking down ever faster, with Greece due to repay billions of euros in early July, and the International Monetary Fund (IMF) warning it will not cough up without new money on the table.

Juncker's finance minister, Luc Frieden, said "the goal is really to have a solution by the end of this month."

He said: "I'm not sure that we'll find a solution next week, but within the next two weeks."

Germany and the ECB have been at loggerheads over how much to ask banks, pension funds and insurers to stump up by way of a "rollover" or any more radical restructuring of Greece's 350-billion-euro ($500 billion) debt mountain.

The latest, 105-billion-euro-plus attempt to rescue Greece's finances hinges on to what extent private investors can be forced to accept new terms on old debts before getting their money back from Athens.

"It's not only Germany and the ECB," Frieden said when asked if the main protagonists had patched up differences.

"With all private sector involvement, we have to be very careful to make sure it does not create a credit event (de facto default)... that it does not carry the risk of contagion to other countries," he added.

Of a Dutch threat to refuse to cough up taxpayers' money unless the private sector stumps up one third of the full package, he said of the proportion considered feasable: "It's much too early to say, we are in the midst of a process of discussion and we will see."

Greece's debts equate to more than its entire economy produces in 18 months, and ECB fears that forcing private investors to help out could see the credit ratings agencies deem Athens to be in default, a huge risk for the eurozone.

Standard & Poor's on Monday slashed Greece's credit rating to the lowest in the world, virtually default status -- sending the yield on 10-year Greek bonds spinning to a record high of 17.175 percent as the talks began.

Backing Schaeuble and Dutch Finance Minister Jan Kees de Jager's hardline stance, Austrian Finance Minister Maria Fekter said "we can't leave the profits in the hands of the banks and the losses in the hands of taxpayers."

Barely a year after a 110-billion-euro first bailout, Belgian Finance Minister Didier Reynders has said the latest plan will need more than 80 billion euros of international funding and Greek state sell-offs, plus another 25 billion euros from the private sector.

Often a reliable guide to negotiations throughout a debt crisis that has also seen Ireland and Portugal need bailouts, Reynders said banks had to "maintain their exposure to Greek debt over the next few years."

The incoming ECB chief, Italy's Mario Draghi, told a European Parliament confirmation hearing on Tuesday: "We know how to manage the bankruptcy of a company, we have just learned -- and I am not sure learned completely -- how to manage the default of a bank... We haven't yet learned how to manage a sovereign default."

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