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The course of the PSI procedure and the recapitalization of the banks, which will be carried out in three stages, were discussed yesterday at a meeting between the Finance Minister Evangelos Venizelos, the Director of the Bank of Greece George Provopoulos and the heads of the six largest banks in Greece.

As mentioned, the boards of directors of the banks will meet next week to decide on their participation in the PSI, with the portfolio of bonds they have. Evangelos Venizelos asked them to speed up the approval procedure, so that it can be done early next week in order for a clear message to be sent to the foreign markets.

It should be noted that the government bonds held by banks and insurance funds in Greece reach 75 billion euro, covering 36% of the total amount of bonds which will be subject to haircut. Out of these, 50 billion euro belongs to banks and insurance companies, and 25 billion euro - the social security funds.

As for the recapitalization of the banks, the Finance Ministry officially informed the bankers that it will be carried out in three stages, and the total amount of the capital to be allocated will reach 50 billion euro.

In particular, the first tranche in the amount of 23 billion euro, as provided in the loan contract, will be granted immediately after the end of the PSI programme. The distribution of money between banks will be based on the losses from the bonds in the portfolio of each bank, which will be certified by the Bank of Greece.

The next second tranche will be granted at the end of 2012, after the Bank of Greece makes assessments both for the damages resulting from the PSI, and for the amount of new estimates of "healthy" capital required on the basis of the inspections of Black Rock.

Another, third tranche will be granted in 2013 and will be combined with the requirement of the Memorandum for further strengthening of the capital in the local credit system and for a 10% increase in the main index for capital adequacy.

ISDA: First victory

The decision of the International Swap and Derivatives Association - ISDA, that the Greek bonds exchange programme is not a "credit event", is considered to be a very important first step in the implementation of PSI.

Nevertheless, as experts warn, this does not completely remove the risk of triggering the payment of the insurances against failure (cds), as the decision relates to the specific questions posed by the two lenders.

It is considered almost certain that other creditors will also contact the ISDA with new questions, the most important of which are likely to be related to the famous collective action clauses (CACS). If the required percentage of participation of private creditors was not reached and Greece triggered these clauses, thus forcing other lenders to participate in cutting the bonds, it is possible that a negative decision of the ISDA will follow.

Many foreign creditors believe that the activation of CACS is inevitable, but their opinions are different when it comes to the question of what will follow then. A part of them note that even if the decision concerns a very small percentage of lenders, the bonds exchange programme will become binding and therefore it will be a "credit event".

They also add that an opposite opinion of ISDA in this case would compromise the purchase of CDS, and therefore putting into question their usefulness as a means to protect creditors.

Some opinions are expressed, however, that point out that if Greece was forced to pay insurances against failure, this would encourage speculators to bet on bankruptcy and on other Member States of the euro area and exert unbearable pressure on them, thus causing even greater problems in the international financial markets. In all cases, however, ISDA will have the last word.

Meanwhile, cutting the bonds in recent days also interests Japan. And this is so because Japanese lenders hold Greek bonds worth a total of 1 billion euro issued in yen.

Shinsei Bank, one of three banks managing these bonds noted in a message that the exchange programme should not be applied to Japanese creditors, due to time constraints and legal requirements that apply in Japan.

It is however added that "at this point the Greek government is unable to promise anything."

Full coverage of credit needs by 2014

According to a survey by the Department for current economic analysis of Eurobank, the total package of financial aid for Greece by the European Financial Stability Facility (EFSF) and the International Monetary Fund, provided for in the new loan agreement for the period 2012-2014 amounts to around 170 billion euro and is divided into: a) new capital amounting to 130 billion euro from the official creditors of the country, b) unallocated funds in the amount of 34 billion euro from the first package of financial aid, and c) additional capital amounting to nearly 6 billion euro arising from the decisions of Eurogroup taken on 21^st of February for rapid adjustment of the ratio of government debt to GDP, and the goal is that in 2020 it reached 120.5%.

To those funds we should also add the additional funding in the amount of at least 60 billion euro for the period 2012-2014, which will come from the reductions in government spending for the payment of interest through the PSI programme.

The expected positive results are a complete covering of the credit needs of the country during the period 2012 - 2014 and the drastic reduction of credit needs during the period 2015-2020 to levels that are below 50 billion euro, according to estimates of Eurobank.