Germany's bank association on Saturday backed government proposals to get private creditors involved in the cost of a second bailout for Greece, although it was not clear if the banks favoured a controversial bond swap.
favored Berlin is pushing hard for commercial banks to contribute to the cost of the estimated 120 billion euro ($172 billion) deal, but has not yet convinced the European Central Bank and ratings agencies that this can be done without triggering a credit default.

Officials say the ECB argues that a swap, favored by German Finance Minister Wolfgang Schaeuble, could be judged a default and make Greek bonds unacceptable as collateral, potentially leading to a collapse of the Greek banking sector.

German Private Banking Association (BdB) Managing Director Michael Kemmer told a radio interviewer: What Herr Schaeuble has proposed is in principle not unreasonable. Our members would also participate.

It was not clear if that meant he supported a swap or merely the idea of private creditors becoming involved.

But his comments also followed signs that French banks were agreed in principle to some form of rollover of Greek debt on condition that all creditors do the same.

Schaeuble urged parliament on Friday to back additional aid for Greece but said the banks' participation in a new package was unavoidable and that he favored a swap that would push out Greek debt maturities by seven years.

The head of the Eurogroup of euro zone finance ministers, Jean-Claude Juncker, aligned himself with Berlin, but said any solution must be agreed with the ECB.

I am of the opinion that there will have to be a contribution from private creditors. There must be a voluntary, soft restructuring, he told Germany's Inforadio.

We cannot push this private creditor participation through without the European Central Bank, or against it.

Asked how such participation could be arranged and kept voluntary, he said: We are discussing it.

RISING COST

Euro zone official sources told Reuters on Thursday that the new international bailout being put together for Greece was likely to total around 120 billion euros, instead of the 90 billion euro figure previously suggested by officials.

Asked about the 120 billion euro figure, Juncker said: The figures being floated in public are, in their totality, correct ... I do not believe, however, that euro zone states will have to come up with this sum alone.

Getting the banks to contribute will help Europe's politicians sell the idea to their electorates of giving Greece yet more money.

German Chancellor Angela Merkel went on the stump for the bailout in a weekly podcast on Saturday.

She said the debt crisis could threaten Germany's economic recovery if further action was not taken.

We should not do anything that would endanger the global recovery and put Germany back in danger, Merkel said, pointing to the bankruptcy of investment bank Lehman Brothers in 2008, which triggered the global financial crisis and recession.

We should not simply allow the uncontrolled bankruptcy of a state -- instead we must see how we can increase the competitiveness of countries in difficulty and give them the chance to work off the debt, she said.

Part of the poker game is convincing the banks involved that it is in their interest to take on future Greek debt in aid of avoiding a full-scale default on existing loans.

Much of the money could come from Greek banks, who have been shut out of funding markets and are dependent on the ECB or other official sources of liquidity for their survival.

The BdB had previously taken a stiff line, saying that German banks' involvement -- previously planned only for after 2013 -- was a last step and that that point had not been reached.

Kemmer reiterated that the participation of private creditors should only be on a voluntary basis but that a disorderly default for Greece must be avoided.

In principle, it is correct that the investor who is holding the paper, which is filled with risks, has to attend to those risks too, he said.

We cannot afford to have a further crisis of confidence. On top of that, it is not only the banks that are affected ... A disorderly default could also affect life insurers and old age pension payments.

(Additional reporting by Brian Rohan, Marilyn Gerlach and Jan Strupczewski; writing by Patrick Graham; Editing by Kevin Liffey)