There are reports that talks between governments and private lenders about voluntary participation in a second bail-out package for Greece are beginning today.
Reuters quoted a German government source as saying that all relevant banks and insurers in Germany which could contribute to a private sector solution would take part in the talks. The source said the same process would start elsewhere in the euro zone.
Euro zone governments are discussing a second bail-out package for Greece that would run from 2011 to 2014 and could amount to €120 billion. This could include up to €30 billion in private sector contributions on the basis of the so-called 'Vienna Initiative'.
Chancellor Angela Merkel has taken criticism in the German press for softening her position during a meeting with French President Nicolas Sarkozy on Friday.
She agreed there that any private sector participation should be purely voluntary and address concerns of the European Central Bank. In exchange for their support, German lenders have now demanded 'additional incentives' in the form of state guarantees.
Banks in Germany have quantified their exposure at €10-20 billion while insurers estimate their holdings are substantially less than €6 billion.
Greek Prime Minister George Papandreou last night won a confidence vote in parliament on his cabinet reshuffle and his plans to cut up to €28 billion from the budget over the next four years.
The vote was the first hurdle for Greece to receive the next €12 billion instalment of its EU-IMF bail out programme, which the country needs to avoid going bankrupt next month.
The result gives his Socialist government some breathing space but not much. He must pass a vote next Tuesday on a punishing new round of austerity measures.
Europe's reaction to Ireland 'unfair' - Sutherland
Former European Commissioner Peter Sutherland has criticised the response to the sovereign debt crisis in Europe as incoherent and inadequate.
In an address to the Irish Exporters' Association, where he was presented with an award, Mr Sutherland said the response had involved a divergence of opinion which had been damaging to the global perspective of markets.
While strongly advocating European integration, the former Attorney General said the European reaction to Ireland's problems had been unfair and counter-productive. He described the interest rate being charged on Ireland's bail-out loans from Europe as unacceptable and wrong, and added that the linkage made by France between a reduction in that interest rate and Ireland's corporate tax rate was also unacceptable.
