International bankers and European Union officials made no progress on Thursday in securing a private sector contribution for a second bailout of Greece and bond yields climbed on concern about the scheme.

The managing director of the Institute of International Finance (IIF), a group representing around 400 banks and financial organizations, met representatives from the European Central Bank, the Greek government and the euro zone in Rome to try to break a deadlock over how private creditors might voluntarily maintain their exposure to Greek sovereign debt.

It was the latest in a series of meetings in recent weeks, but there is little sign of the parties reaching a deal. Thursday's meeting, which explored a possible buyback of Greek debt, broke up with no conclusion.

To avoid a debt default by Greece, euro zone finance ministers are trying to put together a second international bailout by mid-September. A private sector debt rollover, in which investors would buy new Greek bonds as existing ones matured, is an important part of the new rescue plan.

Until Thursday, efforts had focused on a French proposal to roll over up to 70 percent of Greek debt maturing before the end of 2014, with a portion of that going into new 30-year Greek bonds that would be guaranteed by other AAA securities.

But attention has now shifted to the possibility of buying back Greek debt, or switching existing Greek bonds for longer-dated ones, which could trigger a default.

In a statement, the IIF said participants had discussed debt buy-back approaches, but did not go into details.

Reflecting fading hopes for a breakthrough, one banking source commented before the meeting: The circus moves to Rome.

Partly because of the insistence of the European Central Bank, governments and banks have been trying to put together a debt rollover that would not prompt credit rating agencies to declare a default -- even a limited or selective default. But that is proving very difficult.

Asked about such a possibility at a news conference after the ECB raised euro zone interest rates by a quarter of a percentage point to 1.5 percent, President Jean-Claude Trichet said: We say 'no' to selective default or credit event.

Dutch Finance Minister Jan Kees de Jager told a Dutch newspaper on Thursday that if pressure needed to be put on the private sector to ensure its involvement was substantial, then that would just have to be done, despite the implications.

I think we need to accept that a voluntary contribution is not realistic, he told Het Financielle Dagblad. If a compulsory contribution from the banks leads to a short and isolated (credit) rating event, then that is not so bad.


Yields on government bonds of indebted euro zone states rose to euro-era highs on Thursday because of concern that any scheme to have private investors pay in a rescue of Greece could be applied to the debt of other countries too.

Portuguese two-year bond yields rose more than a percentage point after rising by more than 4 percentage points on Wednesday following Moody's downgrade of Portuguese debt to junk. Irish 10-year bond yield jumped more than 0.7 percentage point to 13.42 percent. The euro weakened marginally to 1.4280.

In Frankfurt, the ECB said its rate hike was aimed at curbing inflation, but the move will also increase borrowing costs and pressure on banks in Greece, Ireland and Portugal, as well as other at-risk euro zone states such as Spain.

Trichet said the bank had decided to suspend Portugal's requirement to post collateral for credit operations, a move to soften the burden on Lisbon.

Despite pressure on Spain, Madrid showed it could still fund itself in the markets at affordable rates, attracting strong demand on Thursday for 3 billion euros of three- and five-year bonds, helped by Spanish banks which traditionally purchase their own country's debt.


The next bailout of Greece, which follows agreement in May 2010 on 110 billion euros of emergency loans, is expected to total around 115 billion euros ($164 billion) and aim to fund Athens until late 2014, when it should return to markets.

Of the total, euro zone governments want the private sector to provide 30 billion euros via the debt rollover. Greece itself would provide a further 30 billion euros to the package by selling state assets, and the remainder would come from the EU and the International Monetary Fund.

Euro zone finance ministers will discuss the outlines of the new plan in Brussels on July 11, but no firm decisions are expected because the private sector's role remains unclear.

In Berlin, Jean-Claude Juncker, the chairman of the 17-member Eurogroup, added his voice to criticism by EU leaders of ratings agencies following Moody's downgrade, saying he favored the creation of a European credit ratings body.

Michel Barnier, the European commissioner for financial regulation, has suggested the licenses of ratings agencies operating in Europe could be revoked if they don't adhere to new, stricter EU rules on their operations.

(With additional reporting by Frankfurt bureau, DeepaBabington in Rome, Martin Santa in Bratislava; writing by LukeBaker; Editing by Andrew Torchia/Ruth Pitchford)