German banks back government line on Greece: BdB chief

FRANKFURT (Reuters) – Germany’s banks association on Saturday backed government proposals to get private creditors involved in the cost of a second bailout for Athens, although it was not clear if they favored a controversial bond swap.

Berlin is pushing hard for the private sector to contribute to the cost of an estimated 120 billion euro ($172 billion) bailout but officials are struggling to find terms that will persuade the banks to take part without triggering a credit default.

The European Central Bank is strongly against a solution involving swapping existing bonds for new ones, proposed by German Finance Minister Wolfgang Schaeuble this week.

Officials say the ECB believes that a swap could lead ratings agencies to declare Greece had defaulted and make the bonds unacceptable as collateral at the central bank, in turn leading to a collapse of the Greek banking sector.

Asked if the banks went along with a resolution by the German parliament urging private creditors to contribute, BdB Managing Director Michael Kemmer told a radio interview: “What Herr Schaeuble has proposed is in principle not unreasonable. Our members would also participate.”

Schaeuble urged parliament on Friday to back additional aid for Greece but said private creditor participation in a new package was “unavoidable” and that he favored a swap that would push out Greek debt maturities by seven years.

Kemmer reiterated that the participation of private creditors should only be on a voluntary basis and that a “disorderly” default for Greece must be avoided.

“In principle, it is correct that the investor who is holding the paper, which is filled with risks, has to attend to those risks too,” he said.

“We cannot afford to have a further crisis of confidence. On top of that it is not only the banks which are affected… A disorderly default could also affect life insurers and old age retirement payments,” he added.