June 19, 2019

News Analysis: Germany a Hurdle to European Unity on Banks

BRUSSELS — European Union officials presented long-awaited plans on Wednesday in hopes of ending the vicious circle in which bailouts of failing banks endanger government finances and the euro currency.

But first they must face down Germany.

Even as officials here laid out their blueprint, the uncompromising stance of German officials like Wolfgang Schäuble was ringing in their ears.

A day earlier, Mr. Schäuble, the German finance minister, warned the European Commission “to be very careful” with its proposal for a single authority to oversee the wind-down of troubled banks because “otherwise, we will risk major turbulence.”

It was in keeping with Germany’s longstanding resistance to sharing financial risk with other European countries. But it was at odds with the more unified approach to European problem-solving that Brussels wants.

“Germany’s intellectual starting point is national resources for national problems, and that is some way off the European Commission’s proposal, which is looking for a European solution,” said Mujtaba Rahman, the director for Europe at the Eurasia Group. If the proposal fails, he said, there is the danger that “the problematic link between banks and sovereigns will actually have been reinforced, not weakened.”

The plan presented on Wednesday by Michel Barnier, the European commissioner overseeing financial services, was conceived as part of a broader European banking union whose other provisions would include a single banking supervisor and an agreement to impose any losses mainly on a bank’s creditors and shareholders, rather than taxpayers.

The program, called the single resolution mechanism by Mr. Barnier, would rely on the European Central Bank to signal when a financial institution in the euro area was facing severe difficulties.

A resolution board, supported by a staff of around 300, and made up of representatives from the central bank, the European Commission and member states of the union, would then make a recommendation, as necessary, on how to shut down or shrink a bank. The board also could draw on a shared fund to help close or radically restructure failing lenders after creditors and shareholders have borne some losses.

European Union officials want the size of the fund to be about 70 billion euros, or $90 billion, by the time it is fully financed by 2025, with money coming from levies on banks.

There would be limits to the power of the new centralized system. It could not, for example, order the closing of a bank without permission of the host government if doing so would result in that country’s taxpayers being liable for some of the bill.

The process was aimed at “involving all relevant national players,” Mr. Barnier said at a news conference Wednesday. But, he said, central management is vital to “allow bank crisis to be managed more effectively in the banking union.”

Giving such a central role to the European Commission, the European Union’s executive arm, could irk both Germany and France, according to some analysts.

That “clearly contradicts” a proposal signed jointly by France and Germany ahead of the last summit meeting of European leaders in June, Philippe Gudin, an economist at Barclays, wrote in a research note. Discussions, scheduled to begin in September among finance ministers, “will likely be long and lively” with the risk of delays because of a lack of agreement, he wrote.

Mr. Barnier said he wanted the system up and running by January 2015. That would require agreement over the course of next year.

For now, Germany is the country raising red flags.

The central sticking point is the call by German officials like Mr. Schäuble for a change in the European Union’s treaties before acceding to anything more than a network of national authorities to handle bank failures.

Treaty changes would be cumbersome and time-consuming process that could take years, if they succeeded at all.

Article source: http://www.nytimes.com/2013/07/11/business/global/european-union-proposes-plan-for-failing-banks.html?partner=rss&emc=rss

European Union Proposes Plan for Failing Banks

BRUSSELS — European Union officials presented long-awaited plans on Wednesday in hopes of ending the vicious circle in which bailouts of failing banks endanger government finances and the euro currency.

But first they must face down Germany.

Even as officials here laid out their blueprint, the uncompromising stance of German officials like Wolfgang Schäuble was ringing in their ears.

A day earlier, Mr. Schäuble, the German finance minister, warned the European Commission “to be very careful” with its proposal for a single authority to oversee the wind-down of troubled banks because “otherwise, we will risk major turbulence.”

It was in keeping with Germany’s longstanding resistance to sharing financial risk with other European countries. But it was at odds with the more unified approach to European problem-solving that Brussels wants.

“Germany’s intellectual starting point is national resources for national problems, and that is some way off the European Commission’s proposal, which is looking for a European solution,” said Mujtaba Rahman, the director for Europe at the Eurasia Group. If the proposal fails, he said, there is the danger that “the problematic link between banks and sovereigns will actually have been reinforced, not weakened.”

The plan presented on Wednesday by Michel Barnier, the European commissioner overseeing financial services, was conceived as part of a broader European banking union whose other provisions would include a single banking supervisor and an agreement to impose any losses mainly on a bank’s creditors and shareholders, rather than taxpayers.

The program, called the single resolution mechanism by Mr. Barnier, would rely on the European Central Bank to signal when a financial institution in the euro area was facing severe difficulties.

A resolution board, supported by a staff of around 300, and made up of representatives from the central bank, the European Commission and member states of the union, would then make a recommendation, as necessary, on how to shut down or shrink a bank. The board also could draw on a shared fund to help close or radically restructure failing lenders after creditors and shareholders have borne some losses.

European Union officials want the size of the fund to be about 70 billion euros, or $90 billion, by the time it is fully financed by 2025, with money coming from levies on banks.

There would be limits to the power of the new centralized system. It could not, for example, order the closing of a bank without permission of the host government if doing so would result in that country’s taxpayers being liable for some of the bill.

The process was aimed at “involving all relevant national players,” Mr. Barnier said at a news conference Wednesday. But, he said, central management is vital to “allow bank crisis to be managed more effectively in the banking union.”

Giving such a central role to the European Commission, the European Union’s executive arm, could irk both Germany and France, according to some analysts.

That “clearly contradicts” a proposal signed jointly by France and Germany ahead of the last summit meeting of European leaders in June, Philippe Gudin, an economist at Barclays, wrote in a research note. Discussions, scheduled to begin in September among finance ministers, “will likely be long and lively” with the risk of delays because of a lack of agreement, he wrote.

Mr. Barnier said he wanted the system up and running by January 2015. That would require agreement over the course of next year.

For now, Germany is the country raising red flags.

The central sticking point is the call by German officials like Mr. Schäuble for a change in the European Union’s treaties before acceding to anything more than a network of national authorities to handle bank failures.

Treaty changes would be cumbersome and time-consuming process that could take years, if they succeeded at all.

Article source: http://www.nytimes.com/2013/07/11/business/global/european-union-proposes-plan-for-failing-banks.html?partner=rss&emc=rss

E.U. Objects to U.S. Regulations on Capital Requirements

BRUSSELS — The European Union’s top financial regulator has objected to U.S. proposals about capital requirements for branches of foreign banks, saying they would be costly, unfair and potentially damaging to the global economy.

The protest, made last week and circulated on Monday by E.U. officials, comes as large swathes of the banking sector in Europe emerge from a long period of state support after a financial crisis that included the collapse of several banks.

The requirement, meant to ensure banks have adequate capital, could put European lenders at a “competitive disadvantage” to their U.S. counterparts, Michel Barnier, the European commissioner for the internal market, warned Ben S. Bernanke, the chairman of the Federal Reserve, in a letter on April 18.

The proposed requirements for so-called foreign banking organizations also “could spark a protectionist reaction from other jurisdictions, which could ultimately have a substantial negative impact on the global economic recovery,” Mr. Barnier wrote.

In addition, European bankers have warned that the proposals could become an obstacle in talks over a Transatlantic Trade and Investment Partnership between the United States and the European Union, which was proposed in February by President Barack Obama.

The rules mark a significant change because U.S. authorities have long allowed the capital requirements on branches of foreign banks to be mainly supervised by their home countries. Pressure grew to overhaul that policy after the Fed was forced to give emergency loans to foreign banks caught up in the financial crisis.

The Fed’s Board of Governors issued the proposal on foreign banks for public comment in December as part of efforts to implement enhanced capital requirements in the Dodd-Frank Act, which beefed up financial oversight in the United States.

One of the main concerns in Europe was a requirement that called for foreign banks to maintain separate liquidity buffers for their U.S. branches, while many American banks would be subject to a single liquidity requirement for their global operations.

The Fed was “completely disregarding” whether foreign banks were already governed by standards that were already as robust as U.S. standards in their home countries, Mr. Barnier wrote.

Mr. Barnier’s protest has strong support from industry groups like the European Banking Federation, which explained its “serious concerns” about the measure in a six-page letter from the federation’s chief executive, Guido Ravoet, to the secretary of the Fed’s Board of Governors, Robert deV. Frierson, on April 18.

The rules would mean U.S. lenders operate under rules “not comparable to how U.S.-headquartered banking organizations are regulated,” warned Mr. Ravoet, whose federation is made up of national associations that count major lenders like Deutsche Bank of Germany and Barclays of Britain among their members.

Some foreign banks could choose to close down their American operations and so “U.S. financial markets and the broader U.S. economy would suffer, especially at a time when the U.S. economic recovery remains fragile, and global economic conditions remain uncertain,” he wrote.

The rules also “could pose another obstacle to the successful conclusion of the T.T.I.P. negotiations, which are expected to be complex and ambitious,” wrote Mr. Ravoet, using the acronym for the proposed transatlantic trade pact.

Article source: http://www.nytimes.com/2013/04/23/business/global/eu-objects-to-us-regulations-on-capital-requirements.html?partner=rss&emc=rss

Economix Blog: Sauce for the Goose, French Style

Michel Barnier, the Frenchman who is the European Commissioner for internal market and services, spoke in New York on Friday at a luncheon sponsored by the Atlantic Council and the Clearing House, and made the plea for the United States to adopt International Financial Reporting Standards, something that now seems very unlikely.

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

“I continue to be disappointed by the slowness of the U.S. in moving toward internationally agreed accounting standards,” he said. “It is essential to have common basic standards. Otherwise we risk that our prudential standards will have different effects.”

He warned of the risks from a return “to a fragmented system based on national or regional approaches.”

Whatever the United States does, genuinely “common basic standards” are probably never going to arrive. And France can take a lot of the credit, or blame, for that.

It was France, at the behest of its banks, that nearly a decade ago insisted on a carve-out from the rules on bank accounting when the European Union agreed to adopt international standards. As a result, Europe’s banks had a choice of which rules to follow.

That move did not go over well with a lot of people. When the United States Securities and Exchange Commission decided to allow foreign companies to file financial reports using the international standards without reconciling them to American rules, it specified that exemption was being granted only to companies that followed the rules without the carve-out. The rules are written by the London-based International Accounting Standards Board.

After the address, I asked Mr. Barnier if the European commitment to common rules meant that it was now willing to give up carve-outs from rules it did not like. Before he could reply, one of his aides, Nadia Calviño, leaped in to point out it was a very small carve-out that Europe demanded and got. (It was small in terms of words, but not in terms of effect.) She made clear Europe was by no means giving up the right to opt out of rules it did not like. Later she told me that the accounting standards board was working on new banking rules, which might not require a carve-out, and that I should look to the future, rather than the past.

Mr. Barnier is the same commissioner who in the past has seemed to threaten to withhold funds from the accounting standards board if it adopted rules that Europe did not like. And he has warned that Americans on the international board might have to go if the United States did not join up.

American support for international reporting standards seems to have faded away. Some big multinationals still like the idea, and so do the big accounting firms. But to many businesses the idea of changing seems like a significant expense with little benefit. The United States Financial Accounting Standards Board and the international board have been seeking a convergence of standards, but it is clear that neither is willing to defer to the other when they have sharp disagreements. It appears that Generally Accepted Accounting Principles will continue to be applied to American companies.

Mary Jo White, President Obama’s choice as the next head of the S.E.C., has not, to my knowledge, taken a position on this. But unless she chooses to make adopting international reporting standards a major priority — and appointed a chief accountant who agreed — it is unlikely that much will change.

If Europe really wants to persuade Americans to back international standards, it might help if it swore off future political alteration of accounting rules that it does not like.

Article source: http://economix.blogs.nytimes.com/2013/02/15/sauce-for-the-goose-french-style/?partner=rss&emc=rss

European Leaders Question Timing of Credit Downgrade Warning

Late Monday, S. P. warned that the ratings of 15 euro zone countries, including Germany and France, were vulnerable to a downgrade. On Tuesday, the agency extended its threat of a possible downgrade to include the top-notch, long-term credit rating on the European Union’s main bailout fund, if any of its gilt-edged guarantors were downgraded.

Though rating agencies have made announcements before previous meetings on the euro debt crisis, Monday’s warning was striking. Market indexes in the euro zone closed down Tuesday, while the yields on German and French bonds rose, a sign of added risk to holders of the securities.

The European commissioner responsible for financial market regulation, Michel Barnier, complained that S. P. had acted without waiting to evaluate the results of the coming two-day summit meeting in Brussels.

Jean-Claude Juncker, who heads the group of euro zone finance ministers, added during an interview on German radio, “I have to wonder that this news reaches us out of the clear blue sky at the time of the European summit — this can’t be a coincidence.”

This time S. P.’s downgrade threat was effectively a warning to European leaders of the consequences that would flow from failure to take sufficiently convincing action.

Few now dispute the central thrust of the argument advanced by the rating agency that the economy of the euro zone is deteriorating so rapidly that quick and far-reaching action is required to avert disaster.

“I actually see a positive effect, because now everyone must be aware of how serious the situation is,” Norbert Barthle, the budget spokesman for Chancellor Angela Merkel’s conservative party in Germany, told Reuters.

The German finance minister, Wolfgang Schäuble, called it the “best encouragement” to find a solution.

S. P.’s statement will prompt European leaders “to do what we’ve promised, namely to take the necessary decisions step by step and to win back the confidence of global investors,” Mr. Schäuble said.

A report on Tuesday from Herman Van Rompuy, president of the European Council, outlined a fast-track option for creating a tighter fiscal framework, or “fiscal compact,” for the 17 countries in the European Union that use the euro. This method would rush changes through and avoid the need for time-consuming approval in all 27 European Union nations.

The hope among many European officials is that an accord along these lines will give the European Central Bank political cover to intervene more aggressively to ease the crisis. It was unclear on Tuesday, however, whether the more limited “quick fix” solution — as opposed to a full modification of the European Union treaty — would allow enough change to satisfy Germany.

Speaking on a visit to Germany, the United States Treasury secretary, Timothy F. Geithner, praised recent efforts of European leaders to forge a stronger fiscal union.

“I am very encouraged by the developments in Europe in the past few weeks,” including the reform commitments in Italy, Spain, and Greece, and new steps toward a “fiscal compact,” he said in Berlin.

Asked about an enhanced role for the International Monetary Fund, Mr. Geithner responded that it was playing an important role, and that he expected it to continue to do so. He said the United States continued to support the fund “in the context of the efforts Europeans are making to build a stronger Europe.”

Speaking in Brussels, Mr. Barnier rejected the idea that the S. P. announcement was an act of revenge after the European Commission announced plans last month to tighten regulation of rating agencies.

In fact, had the new rules been in place, they would not have covered Monday’s statement. “Our proposals apply to ratings, rather than warnings, though it might be worthwhile to discuss whether they should apply to both,” said Chantal Hughes, a spokeswoman for Mr. Barnier.

Mr. Van Rompuy’s paper outlined the possibility that the euro zone’s new permanent bailout mechanism should be allowed to recapitalize banks and should itself have “the necessary features of a credit institution.”

The paper also keeps open the longer-term option of euro bonds — something ruled out by Mrs. Merkel and Nicolas Sarkozy of France on Monday.

But its main point is that an amendment of Protocol 12 of the founding European Union treaty could be agreed upon by leaders, who would simply have to consult with the European Central Bank and the European Parliament. “This decision does not require ratification at national level,” the document said.

This way countries would write into their own law an obligation “to reach and maintain a balanced budget over the economic cycle.” This could be complemented with pledges of “automatic reductions in expenditures, increases in taxes or a combination of both” when the rule was broken.

More fundamental changes and “an enhanced role for the E.U. institutions, with a higher intrusiveness in the case of lack of implementation,” would mean full treaty change, the document said.

On Tuesday, the French prime minister, François Fillon, indicated that his country was contemplating a full-scale revision of the treaty when he laid down a timetable to French parliamentarians. “Our objective it to reach a deal in March 2012 that would be ratified by the end of 2012,” Mr. Fillon said, Reuters reported from Paris.

Annie Lowrey contributed reporting from Berlin.

Article source: http://feeds.nytimes.com/click.phdo?i=f3c2786931b6e5ef934d4318c2eec819

Germany Calls S.&P. Downgrade Threat a Spur to Act on Euro

Late Monday, S.P. warned that the ratings of 15 euro zone countries, including Germany and France, were vulnerable to a downgrade. On Tuesday, the agency extended its threat of a possible downgrade to include the top-notch, long-term credit rating on the European Union’s main bailout fund, if any of its gilt-edged guarantors are downgraded.

Just before the latest move, the European commissioner responsible for financial market regulation, Michel Barnier, complained that the rating agency had acted without waiting to evaluate the results of the summit meeting, set for Thursday and Friday.

Jean-Claude Juncker, who heads the group of euro zone finance ministers, added during an interview on German radio, “I have to wonder that this news reaches us out of the clear blue sky at the time of the European summit — this can’t be a coincidence.”

On several occasions in the past rating agencies have made announcements before meetings on the euro debt crisis. This time S.P.’s downgrade threat was effectively a warning to European leaders of the consequences that would flow from failure to tale sufficiently convincing action.

Few now dispute the central thrust of the argument advanced by the rating agency that the economy of the euro zone is deteriorating so fast that quick and far-reaching action is required to avert disaster.

“I actually see a positive effect, because now everyone must be aware of how serious the situation is,” Norbert Barthle, the budget spokesman for Chancellor Angela Merkel’s conservative party in Germany, told Reuters.

The German finance minister, Wolfgang Schäuble, called it the “best encouragement” to find a solution.

“The truth is that markets in the whole world right now don’t trust the euro area at all,” he said in Vienna, Bloomberg News reported.

S.P.’s statement will prompt European leaders “to do what we’ve promised, namely to take the necessary decisions step-by-step and to win back the confidence of global investors.”

Market indexes in Europe were lower in late trading Tuesday, while the yields on German and French bonds rose, a sign of added risk to holders of the securities.

Speaking in Brussels, Mr. Barnier rejected the idea that the S.P. announcement was an act of revenge after the European Commission announced last month plans to tighten regulation of rating agencies.

In fact, had the new rules been in place, they would not have covered Monday’s statement. “Our proposals apply to ratings, rather than warnings, though it might be worthwhile to discuss whether they should apply to both,” said Chantal Hughes, a spokeswoman for Mr. Barnier.

The governments concerned had been informed in advance of the announcement, said one European official who requested anonymity because of the sensitivity of the issue.

Before the announcement from S.P. the financial markets had reacted positively to the outcome of Monday’s meeting between the French President, Nicolas Sarkozy, and Mrs. Merkel, in which they bridged most of their big differences over how to create a tighter fiscal framework — or “fiscal compact” — for the 17-country euro zone.

The hope among many European officials is that an accord along these lines will give the European Central Bank political cover to intervene more aggressively to alleviate the crisis.

But key issues remain to be resolved in Brussels later this week. All 27 member states need to agree if the European Union’s governing treaty is to be amended — the declared first option of the French and German leaders.

If some countries outside the euro zone object, or demand significant concessions in exchange for their acquiescence — as the British Prime Minister David Cameron is under domestic pressure to do — then France and Germany reserved the right to press for a euro zone only agreement.

Many details have yet to be filled in. They includes the precise role of the European Court of Justice in policing new financial rules that will aim to prevent countries running big debts and deficits. Mrs. Merkel had wanted a key role for the court but has retreated in the face of French objections.

The two leaders agreed on the early introduction of a permanent bailout system for the euro next year and Mrs. Merkel has eased her insistence that, under this arrangement, private creditors must be involved in any future sovereign debt restructuring.

But again the detail is opaque and it remains unclear how a country like France can make its contribution to the fund without jeopardizing its triple-A credit rating.

Article source: http://feeds.nytimes.com/click.phdo?i=f3c2786931b6e5ef934d4318c2eec819

European Union Softens Bid to Rein In Credit Ratings Agencies

In particular, the commission failed to agree to a plan by Michel Barnier, the European Union’s commissioner for the internal market, that could have allowed a regulator like the European Securities and Markets Authority to ban the issuance of new sovereign ratings while bailouts were being considered.

Some of the initiatives proved “a bit too innovative” for other members of the commission, Mr. Barnier said in a news conference in Strasbourg, France.

That still left open the possibility of a later amendment by the European Parliament to include a ban at sensitive times for markets when it comes to review the legislation, officials said.

After a meeting that lasted much of the afternoon, the commission did agree to other measures that would increase the liability of the agencies for improper ratings, oblige issuers of debt to use a wider range of agencies and require agencies to issue ratings in a manner that was least likely to provoke volatility in the financial markets.

Lawmakers from Britain, which zealously protects the interests of London as a financial center, welcomed the decision to put aside the plan to effectively ban ratings agencies from operating at certain times.

Ashley Fox, a British member of the European Parliament, said that “at least the commission has stepped back from a position that could have created yet more mistrust in the markets.”

Preserving financial stability was a major concern during the debate in Strasbourg on Tuesday. A number of commissioners from across the political spectrum and from several countries blocked the measure out of concern that it could do more harm than good without further refinement, according to a person knowledgeable about the discussions who asked to remain anonymous because the meeting was not public.

The commission also dropped plans to limit the largest credit rating agencies from taking over smaller ones, partly because of concerns that such a move would run counter to the European Union’s competition rules.

That initiative had been aimed at helping smaller ratings agencies compete in a sector dominated by Standard Poor’s, Moody’s and Fitch. But the commission did agree to impose new limits on cross-shareholdings between agencies.

The three largest agencies together have 95 percent of the global market for credit ratings, according to the commission. The rest of the market is made up of smaller agencies. Some are specialized in areas like insurance while others are focused on specific countries, like Japan and China.

Mr. Barnier insisted that the proposals agreed to Tuesday were still significant because they could help reduce over-reliance on ratings agencies and allow for greater remedial action.

The rules the commissioners agreed to would encourage investors to sue the credit ratings agencies in national courts for incorrectly assessing the ability of countries and companies to pay their debts “intentionally or with gross negligence.” They also agreed to put the burden of proof on the agency to prove it carried out its work properly.

The new rules would require companies that issue debt to rotate at least one of the agencies they work with once every three years in many cases. No agency would be able to work with an issuer for more than six years in a row. That measure was aimed at reducing conflicts of interest and could give more of an opportunity to newcomers to the market to gain a toehold.

Another change approved by the commission was to make issuers of complex debt seek ratings from two different agencies.

In addition, agencies would need to give notification of a rating change a full working day before publication to give a company or government the chance to notify of any factual errors it made in its ratings. The current notice requirement is 12 hours.

Sovereign debt ratings would be done every 12 months, rather than every six months.

This article has been revised to reflect the following correction:

Correction: November 15, 2011

An earlier version of this article misstated the day of the European Commission’s meeting. It was Tuesday, not Wednesday.

Article source: http://www.nytimes.com/2011/11/16/business/global/european-commission-backs-away-from-strict-control-of-rating-agencies.html?partner=rss&emc=rss

Europeans Caution Ratings Agencies After the Downgrade of Portugal’s Debt

The downgrade included a warning that Portugal, like Greece, might need a second bailout, pushing European stock markets lower on Wednesday and adding to the woes of Ireland, Spain and Italy as traders dumped their bonds, forcing their interest rates up.

Portuguese and European officials condemned the ratings agencies for intensifying the euro crisis, suggesting they were overreacting after they were admonished for moving too slowly to warn of problems in the United States. The move by Moody’s added “another speculative element to the situation,” said José Manuel Barroso, the president of the European Commission.

With both Standard Poor’s and Moody’s making it more difficult for policy makers handling the bailouts of Greece, Portugal and Ireland, the European commissioner for financial regulation said the credit-rating agencies needed to tread carefully.

“I invite the agencies, which are under the control of national supervisors, to be extremely careful to fully respect E.U. rules,” Michel Barnier, the financial regulator, said in a statement from Brussels. “They should learn the lessons from the past.”

The urgency grew as Europe’s biggest banks met with central bankers on Wednesday to figure out ways to put together a second bailout package for Greece that would include contributions from private creditors, despite opposition from the European Central Bank and the rating agency warnings that the proposals discussed so far would be tantamount to a Greek default.

Portugal’s junk rating means that Europe’s banks may face wider losses if their efforts to help Greece falter. The banks, which met under the auspices of the Institute of International Finance, a lobbying group of the 400 biggest banks and insurance firms in the world, were trying to reshape a proposal to give Athens more time to repay loans as they come due without it being termed a default.

“We need to find a solution that avoids a default,” Michel Pébereau, the chairman of BNP Paribas, the biggest French bank and one of Europe’s biggest holders of troubled Greek debt, said on French radio.

But both banking executives and policy makers seemed to be open to a solution that might involve a brief default and selective write-downs of Greek debt.

Charles H. Dallara, managing director of the Institute of International Finance, said that the move by the rating agencies “helps us see that it may not be practical to devise solutions that avoid all the ratings agencies from judging this a selective default.” The issue, he added, “may be more whether any selective default is temporary and surrounded by an environment that can lead to an upgrade of Greece’s creditworthiness.”

Germany revived a proposal, opposed by the European Central Bank, to persuade lenders to voluntarily exchange their Greek debt for securities that could be paid back much later. German leaders, who do not want ratings agencies to tell them what to do, seemed to be willing to risk a short-lived, technical default to ensure that banks and other financial institutions contributed to the bailout.

But one worry is that any form of default could disqualify Greek debt from the collateral that the central bank requires to continue extending loans. Some bankers have warned that such an event could touch off a panic that would rival the collapse of Lehman Brothers in 2008.

The central bank declined to comment on Wednesday, a day ahead of its planned council meeting, where it is widely expected to bump interest rates up slightly.

But the bigger menace may actually lie hidden, in the form of other financial institutions outside the banking system, including insurance firms and pension funds that are suspected of holding substantial amounts of bonds from troubled European countries.

“If you work backwards and look at Greek public debt and try to understand who owns what, you have a hole of 140 billion euros held by asset managers, pension funds and the like, but there is very little information on the details of those holdings,” said Gilles Moëc, an economist at Deutsche Bank in London. “It’s a much bigger pot than what is actually held by banks, but we don’t know who owns how much, or in which country,” he said.

Many banks have already sold their bonds to hedge funds or the E.C.B., which began buying Greek debt more than a year ago.

According to the most optimistic assessments, banks would contribute about 30 billion euros in debt relief to Greece by agreeing to swap maturing bonds for new ones with longer maturities. That sum would be less than 10 percent of Greece’s outstanding debt.

Officials have not provided any detail on where the 30 billion euros would come from, though. German commercial institutions, which along with French banks are the most exposed to Greek debt, have only about 2 billion euros in Greek bonds that would be part of a rollover plan, according to the German finance ministry.

For German banks, “private sector involvement is very small,” said Jens Bastian, an economist at the Hellenic Foundation for European and Foreign Policy in Athens. “The demand for banks to share the burden is coming too late.”

Also unclear is whether billions of euros in insurance contracts against the possibility of a Greek default are concentrated in the hands of a few companies, and if these companies will be able to pay out what they would owe.

But while a Greek default alone would probably be manageable, the biggest fear has been that lenders would abandon other highly indebted countries — justly or unjustly — further distressing the finances of an even larger swath of the 17-nation euro zone. Those concerns mounted Wednesday as analysts said the Portuguese downgrade could ricochet back to Ireland, which received a bailout last winter and may also wind up being downgraded to junk.

Meanwhile, analysts and traders are starting to ask whether Italy, which has the next highest debt ratio of any euro zone country after Greece, might get caught up in the whirlwind. S. P. warned this month that the economy — the third largest in the euro zone after Germany and France — is not growing fast enough to cover its debts.

Liz Alderman reported from Paris and Jack Ewing from Frankfurt. Stephen Castle contributed reporting from Brussels.

Article source: http://feeds.nytimes.com/click.phdo?i=2ee8da0397809b038d8e9d209233e4a1