Two interesting stories regarding Greece have hit the wires today. It´s difficult to know if they are related.

First, Der Spiegel claims the agreement negotiated between German chancellor Merkel and French president Sarkozy has collapsed; Second, Bloomberg reports Europe will pressure Greece by withholding half of the next tranche of money.

The pattern is for Eurozone officials and the IMF to deny Der Spiegel claims, only to find out later that Der Spiegel sources were impeccable.

Is it different this time?

Voluntary Rollover Plan Off the Table?

Please consider Germany ‘dismisses Greek debt compromise plan’

A German compromise plan to resolve a dispute with the European Central Bank over the Greek rescue that was reported by Der Spiegel magazine is no longer on the table, a government source said Sunday.

Der Spiegel had reported ahead of its Monday issue that the German finance ministry called for a beefed-up version of Europe’s temporary bailout mechanism lending to Greek banks to insure they have adequate collateral with the ECB.

It would boost the effective lending capacity of the Emergency Financial Stability Facility (EFSF) to 440 billion euros ($629 billion) and see member states double the amount of guarantees they provide the fund.

Germany’s share of guarantees would climb to 246 billion euros from 123 billion euros, according to the report.

But a German official, who spoke on condition of anonymity, said that while “several options” were being debated to involve private creditors in an Athens rescue, the reported proposal was “no longer on the agenda”.

The source added that the initial plan had differed from the reported proposal in “key aspects”.

German officials say they seek a plan with as few “unwanted side effects” as possible.

Europe May Withhold Half of Greek Payment

Bloomberg reports Europe May Withhold Half of Greek Payment

European governments weighed withholding half of Greece’s next 12 billion-euro ($17.2 billion) aid payment, seeking to keep the country solvent while maintaining pressure on the government to slash the debt that pitched the euro area into crisis.

Euro-area finance ministers may authorize only a 6 billion- euro loan to tide Greece through bond redemptions in July, while further aid hinges on Greek budget cuts, Belgian Finance Minister Didier Reynders said.

“We will in any case try to release the necessary funds for the short term,” Reynders told reporters before a meeting of euro-area finance ministers in Luxembourg tonight.

Tonight’s euro-area finance ministers’ meeting coincided with the start of a three-day Greek parliamentary debate in Athens over a confidence vote in a new cabinet at what Papandreou called a “critical crossroads.” Papandreou has 155 seats in the 300-seat parliament.

Germany, which as Europe’s largest economy is the biggest guarantor of aid packages to Greece, Ireland and Portugal, insists on an “ambitious” economic overhaul in Athens, Finance Minister Wolfgang Schaeuble said.

“We will surely work on laying the groundwork for paying out the tranche,” Schaeuble said. “It also depends on Greece making the necessary decisions with a fundamental consensus of the political parties so that we can be confident that Greece will live up to its commitments.”

While Germany bowed to European Central Bank and French demands not to compel investors to buy new Greek bonds as old ones expire, the lines are blurry between a “voluntary” and “compulsory” rollover that would lead rating companies to declare Greece in default.

On the table are incentives for bondholders to maintain their exposure to Greece, said Luxembourg Prime Minister Jean- Claude Juncker, chairman of the talks. He ruled out an agreement tonight on a new three-year package for Greece, pointing to July for a “final and overall answer.”

Mike “Mish” Shedlock
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