Split Opens Over Greek Bailout Terms

Published: Tuesday, 27 Sep 2011 | 3:47 PM ET

Text Size

By: Peter Spiegel in Brussels and Quentin Peel in Berlin, Financial Times

A split has opened in the eurozone over the terms of Greece’s second €109 billion bailout with as many as seven of the bloc’s 17 members arguing for private creditors to swallow a bigger writedown on their Greek bond holdings, according to senior European officials.

The divisions have emerged amid mounting concerns that Athens’ funding needs are much bigger than estimated just two months ago. They threaten to unpick a painfully negotiated deal reached with private sector bond holders in July.

While hardliners in Germany and the Netherlands are leading the calls for more losses to be imposed on the private sector, France and the European Central Bank are fiercely resisting any such move. They fear re-opening the bond deal could spark renewed selling of shares in European banks, which have significant holdings of Greek and other peripheral eurozone debt.

Shares in French banks have rallied in recent days following signs that eurozone officials are preparing to increase the financial firepower of the bloc’s €440 billion bailout fund, which could within months be able to inject capital into eurozone banks and purchase sovereign bonds.

On a visit to Berlin, George Papandreou, the Greek prime minister, urged Germans to recognise the "superhuman effort" his country was making to impose drastic austerity measures in a deepening recession. "I can guarantee that Greece will live up to all its commitments," he said.

Senior European said there was significant division over the move to re-open the bondholders’ deal, which could trigger a bigger and earlier restructuring of Greek debt. Even within Germany, officials are split over whether to press for a bigger "haircut" for private sector creditors.

"In Germany, there are the hardliners and there are the moderates," said one senior European official. "This is the hardliners’ stance." Read CNBC Report