Galery

2

1

Maria S. Topalova

The negotiations for the voluntary haircut of the Greek debt from private sector bondholders continue in Athens today. Their representatives Charles Dallara, head of the Institute of International Finance and Jean Lemierre, Special Adviser at the French BNP Paribas will hold successive talks with Prime Minister Lucas Papademos and Minister of Finance Evangelos Venizelos. Many observers define today's talks as "the final round". Ideally, Greece must reach an agreement with private sector bondholders by the end of the week and submit it to the summit of the European Union on Monday. Discrepancies between the two parties, however, continue to be serious if not insurmountable.
    The main clash is the interest rate on new Greek bonds, which will have a 30-year maturity and will replace those that expire in the coming months and years. Private sector bondholders offer floating interest rate of low initial level that will rise with the years, its average value being 4%. Germany and the International Monetary Fund insist on an average interest rate of around 3%, arguing that higher interest will prevent Greece from servicing its debt in 2020. To maintain the voluntary nature of the debt haircut, the Greek government and the private sector bondholders will have to reach an agreement.
    The Greek problem should be solved through cooperation and the interest rate on the new bonds is still a problem, said Charles Dallara at a large press conference in Geneva on Tuesday. He explicitly warned there that there is no country in the eurozone, which does not need foreign investment. Therefore, the eurozone countries should show their respect for investors. It seems that this is either not clear, or not appreciated by the other party. "The time for niceties has expired. These guys will have to accept everything," said for the New York Times a Greek participant in the negotiations. "Private sector bondholders will either have to voluntarily accept 70% losses at 3% interest rate or a mandatory 90% loss at 2% interest rate will be imposed on them," said another source familiar with the matter to the Greek Mega TV.
    The interest rate on new bonds is the largest but not the only issue for which both parties are seeking a compromise solution. Another big issue is the voluntary nature of the debt haircut. Once the Greek government reaches an agreement with Charles Dallara, it will be submitted as a proposal to private sector bondholders. Lucas Papademos is determined to legislatively trigger the collective involvement provision or the so-called CACs, if the voluntary involvement is less than 60%. In this case, credit rating agencies threaten to put Greece officially in the category of bankrupt countries. This, in turn, will trigger the Credit Default Swaps.
    It should not be forgotten that 70 billion euro of the Greek debt are in the portfolios of hedge funds that are not represented by Charles Dallara. Among them, there are strong voices of criminal procedures against Greece if it is unable to pay its debts. "Hedge funds appear to control the fate of Greece – by extension Euroland (ironic name for the eurozone) ...", wrote on Twitter Bill Gross, CEO of the largest investment fund in the world, PIMCO, a few days ago.
    Another 50 billion euro are in the portfolio of the European Central Bank, which refuses to participate in the haircut, arguing that it is an institutional rather than private creditor of Greece. The Greek media are persistently speculating that the International Monetary Fund insists that the bonds held by the European Central Bank be involved in the debt haircut in order for Greece to be able to serve its debt alone in 2020. Information was refuted by the Fund spokesman William Murray, but his words sound somewhat ambiguous: "To ensure debt sustainability for Greece, it is essential that a new program be supported by a combination of private sector involvement and official sector support that will bring debt to 120 percent of GDP by 2020. The Fund has no view on the relative contribution of private sector involvement and official sector support in achieving this target. In line with this view, the IMF has not asked the ECB to play any specific role."
    The European Central Bank policy is clearly the hot spot now and this was shown during the meeting of Prime Minister Lucas Papademos with foreign correspondents accredited in Greece ten days ago. He was very talkative while explaining to the surrounding journalists what type of procedure PSI is, how long his office will function, whether he will reduce salaries and pensions and cut civil servants. Asked about the European Central Bank involvement, he answered in an unexpectedly sharp and laconic tone: "I am an outsider, I cannot comment on the bank's policy." The uncertainty about the involvement of the institution from Frankfurt is another argument for the persistence of private sector bondholders of Greece.
    In an interview with CNN, Nobel winner Nouriel Roubini predicted that in 2012, European leaders will finally emerge from the phase of the rejection of reality and will be able to see the reason for the crisis in the eurozone. This, in his opinion, is the lack of competitiveness and hence, of economic growth. Nouriel Roubini sees two options for the eurozone – either for some of the states to leave it to devalue their currencies and become competitive, or for the eurozone as a whole to decide on the sharp devaluation of the euro so that the eurozone as a whole can restore its competitiveness.

Follow Maria on Twitter