09-Jun-2011 | 15:20 IST | Edited by: Tanusree Pal

For the 2^nd bailout package for Greece, the Eurozone countries have agreed to involve the private creditors who will swap their sovereign debt holdings for bonds with longer maturities.

Many Eurozone bankers have agreed to support a maturity extension that would not only reduce Greece's massive debt burden but will also give the country more time to meet its fiscal targets and avoid a harsher restructuring.

The European Central Bank is also expected to welcome this move related to private sector involvement as it has been arguing loudly against any form of debt restructuring for Greece.

Although Greece sealed a €110 billion aid-for-austerity deal in 2010, it has failed to restore confidence in its finances and hence called for a new package which could total € 80-100 billion to cover Athens' funding needs through 2014.

However, there was a debate on whether and how to involve the banks, hedge funds and other private holders of Greek debt in the new package as some of the officials are worrying that such a step could unleash contagion that envelops new countries like Spain, with disastrous consequences for the currency bloc.

In a June 6 letter sent to the heads of the European Central Bank, International Monetary Fund and its Euro zone counterparts, German Finance Minister Wolfgang Schaeuble demanded a "quantified and substantial" contribution from bondholders as part of any new Greek package.

External Links:
European Sovereign Debt Crisis - In early 2010, fears of a sovereign debt crisis, the 2010 Euro Crisis, developed concerning some European states, some of which were Eurozone members Greece, Ireland andPortugal and some of which weren't (such as Iceland, Hungary, Romania). This led to a crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany.

Economy of Greece - 2010-11 Debt Crisis

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