Efforts to secure the private sector's involvement in a second bail-out of Greece have stalled and there is little chance of reaching the €30 billion target figure, euro zone diplomats said today.
Germany, the Netherlands and other northern euro zone states demand the private sector must bear a portion of the cost of a second package of loans to Greece so that the burden does not fall solely on the public sector and taxpayers.
The aim is to get private creditors - banks, pension funds and insurance companies - to provide around €30 billion to a total package of around €110 billion by rolling over their holdings of Greek bonds when they mature.
The remainder would come from Greek privatisation receipts and from the EU and IMF, which would stump up around €60 billion.
But two weeks of negotiation among EU officials, the European Central Bank and bankers represented by the Institute of International Finance (IIF) have made almost no progress, with only the outline of private sector proposals on the table.
'We may not be all the way back at square one, but we're pretty close,' said one senior euro zone official.
'It's pretty hard to see how they're going to get the private sector involvement the Germans want.'
Euro zone finance ministers will discuss the state of play at a meeting in Brussels on Monday, with little expectation that a breakthrough will come soon. Greece is hoping to secure a second package by mid-September.
One euro zone diplomat told reporters today that the talks might end up securing private sector involvement of €15 billion, and touted the figure as a success, but it remains unclear whether that can even be attained.
'€15 billion out of €110 billion, it's already quite a lot, it's really good,' the diplomat said, playing down concerns about how the negotiations with bankers were going.
Talks with the IIF initially focused on a French proposal for banks and other creditors to roll over up to 70% of their Greek government bonds maturing before the end of 2014 by purchasing new Greek bonds with a 30-year maturity that would be guaranteed by other AAA-rated securities.
But it was not clear that the major credit ratings agencies would approve such a rollover as voluntary, regarding it instead as a default, or selective default at best, which would have severe repercussions on financial markets.
After talks in Rome yesterday, the IIF said it was now looking at the possibility of a buy-back of Greek bonds, and there is also a German proposal for a bond exchange, with current bonds being swapped for longer-dated securities, something ratings agencies have said would constitute default.
