European governments are trying to persuade banks and insurers to share the pain of a second Greek bailout package, in an attempt to avoid market meltdown while keeping taxpayers happy.
Talks between governments and creditors will begin across the euro zone on Wednesday, a source in the German government said. The European Union bloc agreed last week that any such participation could only be voluntary.
"The (German) finance ministry has invited banks and insurers for talks on a working group level in Frankfurt," the source said, adding that all relevant banks and insurers in Germany that could contribute would take part.
Separately, the French insurers' association FFSA said its head Bernard Spitz had been summoned to the finance ministry on Wednesday to discuss the Greek debt situation. "Yes, he is there right now," a spokesman said.
Euro zone governments are discussing a second bailout package for Greece that would run from 2011 to 2014 and could amount to 120 billion euros ($172 billion), including up to 30 billion euros in private sector contributions.
But any suggestion that governments are forcing the banks to pay could be viewed by credit rating agencies as effectively a Greek default or restructuring. That could trigger catastrophic further debt downgrades.
German chancellor Angela Merkel last week softened her tough position on the banks in a meeting with French President Nicolas Sarkozy, and the two agreed that any private sector support should be purely voluntary.
SHADES OF VOLUNTARY
In exchange for their support, German lenders have now demanded "additional incentives" in the form of state guarantees , and the talks will in all likelihood focus on the details of how to make this work.
"It's a matter of semantics. What the EU finance ministers want to avoid is a mandatory rollover because of the implications that might have for Greece's ratings," said Simon Adamson, a senior analyst at Creditsights.
"It has to be voluntary, but there are different shades of voluntary," he said, adding that banks in many countries were in a weak position to negotiate after receiving billions of state support at the peak of the credit crisis.
Banks in Germany have quantified their exposure at between 10 and 20 billion euros, while insurers estimate their holdings at 6 billion euros, or just xx percent of the 1.2 trillion euros in insurers' invested assets.
Even if Greece defaulted, the impairment charges for banks might not be devastating, some analysts say. However, a Greek default would send markets into a tailspin and spark fears countries such as Spain and Italy are next in line.