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Greece Down to the Wire With Debt Write-Down Deal

Greek Finance Minister Evangelos Venizelos has a message to investors who are refusing to accept 74 percent losses: take it or leave it because we won't pay you otherwise

ATHENS – Greece will know by the end of March 8 if enough private investors have agreed to accept losses of 74 percent as part of a so-called Private Sector Involvement (PSI) deal designed to wipe out $13I) deal designed to wipe out $134 billion in the country’s debt and stave off default. The pending agreement is the linchpin for Greece to receive a second bailout, this one for $172 billion, from the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) Troika to complement a first series of $152 billion in rescue loans for the debt-choked country.
Despite warnings from Finance Minister Evangelos Venizelos that Greece will impose even harsher terms on investors who insist on being paid back in full and don’t want to subsidize Greece’s losses, even some of Greece’s pension funds who hold Greek bonds say they will refuse to accept the offer. He said the five funds control only about 3 billion euros ($3.94 billion) worth of Greek debt but accused them of “undermining” the national effort to secure the deal, without which Greece will lose its international cash lifeline and likely be forced out of the Eurozone, although he was not critical of politicians and business executives reported to have moved billions of euros out of Greece to avoid paying taxes. Still, the government believes enough investors will go along to prevent the implementation of so-called Collective Action Clauses (CAC’s) which would force losses on the unwilling, although that could trigger a voluntary default.
European Economic Affairs Commissioner Olli Rehn said he expects the deal to go through “without a hitch” although Greek officials have denied reports that it could be delayed, which would signal trouble for the long-stalled negotiations. Without an agreement, the second bailout would be help up and world markets could go into a spin on fears of a default by Greece. Still, said Rehn, “The operation remains financially attractive for the private sector,” although he didn’t explain how losing hundreds of millions of dollars was an advantage. Rehn also said that the Commission is not “privileging” a scenario whereby holders of credit default swaps would claim payment if the Greek swap offer went badly. Those are investors who have bet Greece would go bust and would cash in big-time if it did. Greece doesn’t want to pay them either.
“We are optimistic that we will exceed the 75 percent participation threshold by far based on the data we have so far,” a Finance Ministry official who declined to be named told Reuters. Athens needs at least 66 percent of the investors who own 177 billion euros’ ($233.7 billin) worth of bonds written under Greek law to take part in the swap, to ensure the restructuring can go ahead.
If more than 66 percent of bondholders volunteer, then Greece can enforce the CAC’s to force the holdouts to take part, although that could make matters worse for Greece. If the CAC’s kick in, another 8 billion euros, or $10.5 billion held by Greek public enterprises (DEKOs) will also be submitted, taking the figure that will be reduced to 185 billion euros ($243.2 billion) – or 90 percent of the total privately held debt of 206 billion euros, some $270.8 billion. Some 20 billion euros, or $26.2 billion of debt is written under British law and it remains to be seen what action Greece will take to reduce this amount as Venizelos said investors shouldn’t expect to be paid back what they loaned Greece.
The Eurozone, the 17 countries using the euro, including Greece, want participation of at least 95 percent but is pushing for 100 percent in order to sign off on the second bailout, and will hold a teleconference on March 8 before the deadline to discuss how to proceed, depending on what happens. If CAC’s apply to bonds written under Greek law, the swap is due to take place on March 12. For bonds under UK law, the swap would take longer.
The Institute of International Finance, which led the debt talks for large private creditors, said on March 7 that firms holding 84 billion euros ($110.4 billion) of Greek bonds have agreed to the deal. Three Cypriot banks, which hold almost 5 billion euros ($6.57 billion) of Greek bonds, said they would participate in the restructuring. Some 14 billion euros ($18.4 billion) in bonds owned by Greek pension funds but managed by the Bank of Greece would also be added to the debt relief. Another 3 billion euros of bonds held by the funds will also be put forward voluntarily.
Private investors owning about 46% of Greece’s privately-held debt have so far committed publicly to the bond swap three major Cypriot banks agreed to participate in Greek debt swap, according to a Cypriot banking official. Pressuring undecided investors, the Greek debt agency warned that the country just does not have the money to repay holdouts in full. That means that if they do not accept the bond swap, they may face a full default, and therefore much steeper losses, on their bonds.
“What is happening right now is of historical significance. It will change the profile of our debt, it will alter the factors in play,” Venizelos told Real FM radio. “It will help the nation’s economy breathe, and the sacrifices of the citizens, who have seen their salaries and pensions decrease, will begin to show benefits,” he added. Greeks have had their pay cut, taxes hiked, pensions slashed and 150,000 are scheduled to be fired as a condition of getting the rescue loans.
“What kind of message are we Greeks sending?” Venizelos told private Real FM Radio. “Is our message that we prefer the country to go bankrupt and the social security funds’ bonds to be totally wiped out? If (the bond swap) does not succeed, what will these bonds be worth? They will be worth a big zero. Because the country will have been wiped out.”
(Sources: Kathimerini, AP)

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