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The process of exchanging Greek government bonds for new ones of reduced face value should be completed by Christmas, insists the head of the International Institute of Finance (IIF) Charles Dallara. Formal negotiations on the involvement of private holders of Greek government bonds in the debt reduction start at the headquarters of Deutsche Bank in Frankfurt today. The head of the Bank, Joseph Ackerman, and Charles Dallara will discuss the process with representatives of the European Commission.

Representatives of the Greek financial sector from the National Bank of Greece, Alpha Bank, Eurobank EFG and Piraeus Bank will attend the meeting. Greek bankers are doing everything they can to minimize the losses from the debt haircut. Currently, the state and the bankers are negotiating the level of interest rates on new bonds and the amount of cash that they will receive as part of the combined transaction.

After his meeting with the Prime Minister of Greece, Lucas Papademos, Charles Dallara told Reuters that bankers do not have much room for manoeuvre, but the Institute will ensure the voluntary involvement in the programme. He also said that there are two main options for the Greek debt haircut. The first is to carry out a total reduction of the whole package of Greek government bonds held by private creditors, and the second option offers a slightly different view on the matter, but he did not specify any details.

Today's meeting in Frankfurt is expected to decide the final type of the transactions that will be offered to financial institutions involved in the programme for the Greek foreign debt haircut (Private Sector Involvement, PSI +). During the next few days, notification letters will be sent to ministries and authorities in general, banks, pension funds and other institutions in different countries, which will participate in the PSI + in order to determine the date by the end of 2011 for voluntary involvement in the programme. This will trigger the process agreed at the summit of EU leaders on October 26 this year.

The programme includes bonds expiring by the end of 2035 with € 206 billion face value. They will be exchanged for new securities and cash amounting to 50% of their previous face value. The main argument of the Greek government for this exchange is that the current price of the new bonds will be better than the old one in the secondary bond market because they will have the guarantees of the European Financial Stability Facility and a high AAA credit rating.

Meanwhile, the reform of the private sector in Greece that has to absorb the impact of the deepening crisis continues. National Bank of Greece management has announced that the reduction of the face value of Greek government bonds seriously affects the ability of the financial institution to hold the minimum levels required by the Tier I capitalization index, which should be 9%. Therefore, it would resort to reducing the employees’ salaries by 15% -20%. An official statement by the bank says that the impact from cutting the Greek government bonds held by the National Bank of Greece violates the Bank's capital adequacy. As a result, it is necessary to find the necessary funds to restore the capital adequacy rate from other sources, again according to the statement. These sources are operating and wage costs.

George Giannakopoulos from the union of employees at the National Bank of Greece said, in turn, that this policy leads to a deadlock. He explained that the total amount from the salary reduction of the employees at the National Bank of Greece would be around € 150 million a year and complained that the remuneration of employees has dropped by 12% due to raging tax inflation during the last three years.

The public sector has also awoken and while banks are seeking to consolidate costs to the highest degree, the Privatization Agency has announced that by the end of January it will place seven state enterprises on the counter for sale. On the list are the vast area of the old Athens airport, a group of buildings in the area of ​​the capital, several properties that will be operated as a concession for the development of tourist activity, the horse racing organization, the state lottery and the gas companies in Thessaloniki and Athens.