Euro zone finance ministers were told on Saturday that some 25 billion of any bailout loan to Greece would be needed to recapitalise banks that are on the verge of collapse, sources close to the discussions said.
That is more than double the amount that Athens forfeited in financial stability funds at the end of June when it walked away from talks on completing a previous bailout programme.
The extra capital is needed because of the damage wrought by massive deposit withdrawals before a two-week bank holiday that was ordered on June 29, when Greece imposed capital controls to stop savers and businesses emptying their accounts.
Among other variables in negotiations on a possible package of Greek reforms in return for new loans, the International Monetary Fund is urging euro zone governments to reschedule Greek debts, with one scenario being a doubling of loan maturities to 60 years from 30 to ease Athens’ repayment burden.
Prime Minister Alexis Tsipras applied this week for a three-year loan from the European Stability Mechanism of 53.5 billion euros. EU and IMF experts who analysed Greece’s funding needs concluded it would need some 74 billion euros, the sources said.
Of that, some could come from the IMF, while about 8 billion euros more in bridge financing could be needed to tide Greece over until the bailout was agreed — taking total financing needs to 82 billion euros.
Within that sum, sources said that about 25 billion would need to be used to bolster the balance sheets of banks ravaged by a renewed economic slump and fears that Greece would drop out of the euro single currency area.
If the euro zone agrees to negotiate a bailout, the final shape of any package and the size of loans would depend also on measures the Greek government plans to take to plug a large fiscal gap while trying to stimulate economic growth.
On debt rescheduling, sources close to the matter said that the IMF would prefer to see euro zone governments write down the nominal value of their loans to Athens – some 57 billion euros in the case of Germany alone. But Berlin and other states rule that out, arguing that it would breach euro zone treaties.
Without such a “haircut”, IMF officials were proposing as an alternative easing the terms of the loans — subject to strict conditions for Athens — by combining grace periods on interest payments, lower rates and extended maturities.
“The doubling of maturities is just one option the IMF used to illustrate an alternative if countries don’t want an upfront haircut,” one source said. That could stretch some loans to 60 years, though that was only one possibility.
Another official familiar with the talks said with heavy irony: “It’s so much nicer to bequeath this to our grandchildren than to our children.” (Writing by Alastair Macdonald; Editing by Paul Taylor)