Merkel Shifts On Greek Aid

The Wall Street Journal reports:

German Chancellor Angela Merkel signaled a more-flexible German stance on how to involve bondholders in a new aid package for Greece, in a move that could help to break Europe's deadlock over how to prop up the crisis-hit Mediterranean country.

Ms. Merkel told a joint press conference with French President Nicolas Sarkozy that a so-called "Vienna initiative," code for a voluntary rollover of Greek bonds, could form the basis of a deal.

"The aim is the participation of the private sector on a voluntary basis, and the Vienna initiative, as it's known, is a good foundation, and I think we can move forward on this basis," Mr. Merkel said.

German officials had previously dismissed a voluntary rollover as ineffectual, insisting on a stronger way to make bondholders share the burden of funding Greece, preferably by extending the maturities on Greek bonds.

The European Central Bank, backed by France, viewed anything more than a voluntary rollover as dangerous, since it could amount to a Greek debt default, destabilizing the euro zone.

The dispute has led to a six-week standoff. Ms. Merkel and Mr. Sarkozy said they are determined to resolve the matter "as soon as possible." The chancellor stressed that any formula for involving bondholders in the new Greek bailout needs the ECB's consent.