The Greek debt clock is ticking and the Greek officials feverly check the options ahead the Euro Zone Summit on upcoming Thursday, where the Euro Leaders will discuss the second bailout for Greece, estimated to be 100 billion euro. While EUro officials concentrate try to find out ways for the participation of the private sector in the bailout and avoid a ‘selective default’ as rating agencies threaten to do, Athens is in contact with German, Italian and French decisions makers in the hope of a definite solution before September 15 – when the next tranche of the first bailout will be due.
According to Greek economics portal Capital, the Greek economic team has prepared a bargain paper containing two non-negotiable requests: the sustainability of the Greek debt and the proper funding of the Greek banks.
Regarding the sustainability of Greek debt, Greece does not seem to reject any proposal, except a violent mandatory haircut of bonds that would exclude the country from the markets for decades.
As for voluntary haircut, Greece could be financed to buy cheaply the bonds and eliminate an important part of the debt, provided that there would be changes to the European rescue fund. This proposal has not been rejected by Greece, however there are several technical details in abeyance. But the government is attracted by the solution of voluntary extension of repayment period of bonds maturing in the next 8 years.
According to capital.gr this is what Finance Minister Evangelos Venizelos told some of his EZ counterparts.
The main concern of the economic team is Greece to regain access in the markets no later than 18-24 months in order to cover the medium-term cash needs to pay off old debt and finance growth activities.
“As for the capital security of domestic credit institution, the Greek government considers that the European Central Bank should continue to accept Greece’s guarantees to provide liquidity to Greek banks, which are expected to have an increased participation in the scenario of extension. Just in case there would be the “cushion” of the EFSF, which would be enhanced. However, the government would prefer to avoid the possibility of a Greek bank to resort to the EFSF.”
Lst week I was reading in a Greek newspaper (TA NEA) that in case of a haircut Athens would demand the exclusion of bonds that have been obtained by the Greek Insurance and Pensions Funds.
Meanwhile Reuters has obtained a 3-options paper for the participation of the private sector. According to the paper prepared by EZ officials on July 16, and examining the interplay of various factors, these three option for the sustainability of the Greek debt for the next three years are:
The first option was a buy-back of Greek debt and public sector credit enhancement. It would likely cause a downgrade of Greek debt to selective default or default by ratings agencies.
The second option could be based on French banks’ proposal for a debt rollover, which does not involve public sector credit enhancement. It would likely trigger a downgrade to selective default.
The third option could be based on a tax imposed on the financial sector, or a decentralized Vienna-type agreement with private banks, especially Greek ones which have large holdings of Greek debt, to maintain exposure. This option was unlikely to result in a selective default rating.
Read the whole exclusive Reuters story.