ATHENS (Dow Jones)--The German government is pushing a plan to restructure Greece's debt that would include up to a 50% loss to bond holders and new draconian budget measures imposed on the Greek government, local media report Sunday.
According to the center-right Kathimerini newspaper, the German plan would involve a forced, non-voluntary restructuring of Greece's public debt, that would include slashing the value of that debt by between 40% and 50%.
But the plan also calls for the euro-zone member countries to help recapitalize Greek banks--which would be hit hard by such a restructuring--and for the appointment of a European official in Athens who would have direct oversight, and veto powers, over Greece's fiscal program.
Citing government sources, the newspaper says that the plan has not been officially put forward or discussed by European officials. It adds that many details--such as the willingness of other euro-zone countries to continue financing Greece or the reaction of the European Central Bank to a debt restructuring--remain unanswered.
The report comes as Greece is locked in talks with its international creditors over reforms and budget cuts the country must take in order to secure the next EUR8 billion installment of a EUR110 billion aid package the country signed last year.
Those talks are expected to continue over the weekend where Greek Finance Minister Evangelos Venizelos was due to meet various officials and bankers on the sidelines of the annual meeting of the International Monetary Fund in Washington. Without that aid, Greece will run out of money by mid-October.
According to the center-left Ethnos newspaper, the German government has stepped up preparations for a restructuring of Greece's debt, that include a 50% discount--or haircut--on Greek government bonds.
Fearing that Greece may not be able to secure the next tranche of its aid payment, Germany is trying to prepare its own banks for the consequences of such a debt restructuring by as early as October.
Because a Greek debt restructuring could have consequences on other highly-indebted euro-zone countries--such as Spain, Italy, Ireland and Portugal--the newspaper says Germany's plan calls for measures to support its own banks.
Citing well-placed sources in Brussels, the newspaper says that the German government foresees providing some EUR127 billion in aid to help recapitalize Germany's 10 biggest banks, and that the European Commission is aware of the German plan.
The Ethnos newspaper also reports that following a debt restructuring, Greece would be forced to adopt strict budget terms that would include ensuring a balanced budget each month.
A German official said his country's government was awaiting the findings of Greece's international creditors--the European Union, the International Monetary Fund and the European Central Bank--to see whether and when the latest tranche of Greece's loan package can be paid.
