ATHENS – Greek Finance Minister Evangelos Venizelos, drawing a line in the sand, has told private investors in Greek bonds who don’t want to take losses as part of ongoing Private Sector Involvement (PSI) negotiation that they will be forced to anyway, and shouldn’t expect to be paid back in full. “Whoever thinks that they will hold out and be paid in full is mistaken,” he told Reuters in an interview. The government previously warned that it would activate a so-called Collective Action Clause (CAC) which forces investors to take losses, although it could trigger a default by the ratings agencies. Venizelos said again: “We are ready to activate CACs if needed.” In a Bloomberg Television interview with Nicole Itano in Athens, he said: “This is the best offer because this is the only one, the only existing offer.”
Investors have until March 8 to accept the Greek offer in which they would lose 53.5 percent of their loans, which would amount to 74 percent over a 30-year repayment period. Unless Greece finalizes the PSI deal, it could jeopardize a new $172 billion bailout to go along with a first for $152 billion. Greece could save $134 billion in debt during an economic crisis that has the country constantly on the edge of default.
The Institute of International Finance, which represented banks, asset managers, hedge funds and insurers during the negotiations with Greece ahead of the government making its offer, issued a statement saying that members of its steering committee would take part in the scheme voluntarily, including Allianz, Alpha Bank, AXA, BNP Paribas, CNP Assurances, Commerzbank, Deutsche Bank, Eurobank, Greylock Capital Management, ING Bank, Intesa Sanpaolo and the National Bank of Greece. Only one steering-committee member, Landesbank Baden- Wuerttemberg, has still to back the offer, said the IIF, which represents more than 450 financial-services companies globally. Germany’s DSW investor protection group meanwhile advised private-sector bondholders to reject the offer.
A disorderly default in Greece would likely necessitate outside support for Spain and Italy to stop the threat of contagion, and could cause more than 1 trillion euros ($1.37 trillion) of damage to the Eurozone, the 17 countries who use the euro, the IIF warned, however. “There are some very important and damaging ramifications that would result from a disorderly default on Greek government debt,” a document from the IIF seen by Reuters reported. “It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed 1 trillion euros.”
The IIF though said in its statement that, “Neither the steering committee nor any of its members makes any recommendation or offers any advice to any other holder of PSI eligible debt. Each such holder must make their own decision whether or not to participate in those offers based on their own particular interests and on the advice and assistance of their own advisers.” That wasn’t good enough for Venizelos who said Greece doesn’t want to pay back its loans, although Greek banks – which are going to receive $46 billion from the second bailout to recapitalize, are pressing customers, already under the weight of big pay cuts and tax hikes, to pay back their loans in full.
If between 66 and 74 percent of bondholders sign up for the deal, Athens can force losses on the holdouts via the CACs. Venizelos said he was confident the take-up would be above 90 percent. But if it is between 75 and 90 percent, Greece and its Eurozone partners will have to whether using the CAC’s would work or create a bigger problem with the ratings agencies declaring a voluntary default.
Erik Nielsen, chief global economist at UniCredit SpA in London, told Bloomberg that enough creditors will probably participate in the write-down to avoid triggering so-called the CAC’s, which could be used by Greece to compel investors to participate but rattle the markets and perhaps backfire. “If we can avoid the triggering of CDSs this is the best solution,” said Venizelos. “With a near universal participation it’s not necessary to activate CACs. But this clause exists in our legal order and we are ready to implement the legislation if necessary.”
THE NEXT STEP: GROWTH
The European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) Troika which is lending the rescue money, said it now wants to shift toward finding a growth path for Greece because the loans came with conditions of big pay cuts, tax hikes, slashed pensions and the planned firing of 150,000 state workers that has created a vicious cycle of recession and 21 percent unemployment and led to the closing of more than 111,000 stores. Retail federations said that the winter sales period, in which offers of up to 80 percent off were being made, didn’t prevent a 60 percent drop in sales and estimated that thousands more businesses will close once they sell off their inventory.
Greece focus on restoring growth to an economy now in its fifth year of recession, the longest stretch in peacetime, Venizelos said. “Greece is now, after the approval of the new program and after the implementation and completion of the PSI, ready to come back to growth,” he said. “It is absolutely necessary.”
Responding to a question from Bloomerg about comments made by Luxembourg Prime Minister Jean-Claude Juncker on March 1, when he said the bloc has a backup “Plan B” for Greece, Venizelos said there is no alternative course of action if the debt swap fails. We only have a Plan A,” Venizelos said. “The acceptance and full implementation of the existing plan, the so-called Plan A, is the best solution for Greece, for the Eurozone and also for creditors and holders.”