Plans for a second bailout of Greece are taking shape, with a proposal for a three-year package worth 80 to 100 billion euros set to be ready in the next two weeks, eurozone official sources said on Tuesday.
But key aspects of the scheme, including how to persuade private sector investors to bear part of the burden, have not been resolved and time is tight before late-June meetings at which officials hope to present the plans to decision-makers.
If approved by euro zone governments, the package will consist of revenue from three sources: sales of Greek state assets, a rollover of Greek debt by private sector creditors, and fresh funds from the euro zone bailout facility and the International Monetary Fund, the sources told Reuters.
Euro zone leaders hope the second package, which would effectively replace a 110 billion euro bailout deal agreed with Athens in May last year, will give Greece time to overhaul its economy and return to growth, allowing it to start reducing its 340 billion euro sovereign debt mountain.
The balance between the three sources of funds will depend on the outcome of discussions with private holders of bonds, and on how much can be raised from the sale of Greek assets.
But the sources said current thinking was that about 25-30 billion euros would come from asset sales; 30 billion from the debt rollover; and the rest, 30-40 billion euros, from the IMF and the bailout fund, the European Financial Stability Facility. As with rescues of Ireland and Portugal, the EFSF would provide two-thirds of official loans and the IMF one-third.
The new package would fund Greece for up to three years, or until it can return to financial markets to fund itself, which is now expected to be in mid-to-late 2014 or early 2015, the sources said. The initial bailout scheme envisaged Greece gradually returning to the markets from next year.
"The estimate of the size is up to 100 billion euros, with the key element the degree of voluntary private sector involvement, which could contribute about one third or more," one senior euro zone source involved in discussions of the new package told Reuters.
By the time the new bailout plan goes into effect later this year, Greece is likely to have received 65 billion euros of the emergency official loans earmarked for it in the first package, leaving 45 billion euros yet to be disbursed. It is not clear how much if any of those remaining loans would be folded into the new package.
European Economic and Monetary Affairs Commissioner Olli Rehn, speaking to the finance committee of the European Parliament on Monday, said the package would be ready "in the next few weeks, before the 20th of June", when euro zone finance ministers will meet in Luxembourg.
That deadline would permit European Union leaders to sign off on the new bailout at a summit in Brussels on June 23-24. Some EU officials, however, say a lot of work remains to be done in putting the package together, and are unconvinced that the current financing scenarios can work.
One senior official was dismissive about the possibility of raising 25-30 billion euros via privatisations, even though the Greek government is aiming for a final figure of 50 billion by 2015. He described such thinking as "fantasyland".
"You're talking about a distressed seller in a depressed economy trying to sell dodgy assets. It's fantasy to think you can raise 25 or 30 billion. Who on earth is going to want to buy the Greek postal bank?" the official said.
Officials view the private sector debt rollover, in which investors would voluntarily maintain their exposure to Greece by purchasing fresh bonds as existing ones matured, as an important aspect of the new bailout, because it would help donor governments justify fresh aid for Greece to taxpayers. But big problems surrounding the rollover also remain to be resolved.
Jean-Claude Juncker, the chairman of euro zone finance ministers, said officials were working with the European Central Bank on a way of involving the private sector that would satisfy credit rating agencies. If the agencies responded to a rollover by declaring Greece in default, that could destabilise markets.
"We're working on a formula that will not lead to a negative judgment by the ratings agencies and will not mean that the country is seen to be in default," Juncker said, without elaborating further on the discussions.
However, rating agency officials told Reuters that even if the rollover were presented as a voluntary scheme, they might classify it as a default if investors took part because they feared the consequences of not participating. This would involve an element of coercion, the officials said.
ECB Governing Council member Lorenzo Bini-Smaghi also expressed unease with the idea of a rollover in Berlin on Monday, saying it would be hard to carry out in practice.
"The point I would like to make is that having the private sector actively involved in preventing and resolving sovereign crises is a good idea," he said during a speech.
"However, the practical implementation of this idea is fraught with complications and, if done unwisely, may actually be very damaging, and turn out to be more costly for taxpayers. The events of recent months seem to confirm my views."
The sources said any Greek rollover was likely to involve investors in two- or three-year Greek Treasury notes buying bonds of seven years or longer.
In order to persuade investors to participate, officials are looking at the idea of offering some sort of insurance or guarantee with the new debt. However, that might raise legal objections because it could result in the subordination of old debt and be regarded as coercion of bondholders, sources said.
Another option under study is offering Greek privatisation receipts as security for the new bonds, or at least collateralising them with state assets, one source said.
But even if most of Greece's private sector creditors -- largely German and French banks -- can ultimately be convinced that a rollover is worth their while, it is likely to take a lot longer than two weeks to secure their involvement. So this aspect of the new Greek bailout may remain partly unresolved if governments approve the package late this month.