Brussels, 24/10/2011 (Agence Europe) - The European Commission still wants a “voluntary restructuring” of Greece's public debt. On Monday 24 October, a spokesperson for EU Economic and Monetary Affairs Commissioner Olli Rehn said that the Commission clearly preferred a voluntary contribution and the interested parties are relatively close to reaching agreement.
The eurozone nations are deciding on the second Greek bailout package, which the private sector will be contributing towards. On 21 July, they decided that private investors would take a 21% write-down in the value of Greek bonds, which would amount to a total €37 billion in 2011-2014 (see EUROPE 10424). This write-down, described as a haircut, will have to be much bigger, however, because the recession is running deeper than forecast (with the economy contracting by 5.5% this year) and the bond markets closed down upon the news of the 21% agreement.
According to the European Commission, ECB and IMF fact-finders' report on the sustainability of the Greek debt, a report leaked to the press, a 50% write-down of Greek bonds will be required to reduce the country's debt to 120% of GDP by 2020. The debt currently stands at more than €350 billion and over 160% of this year's GDP. The fact-finders say a 60% write-down would keep the public debt at the level planned for in the second version of the Greek bailout, namely €109 billion over three years.
The negotiators are working on the basis of a write-down of between 40% and 60%. Germany wants the biggest write-down and France the lowest. French banks are hugely exposed to Greek debt and will need recapitalisation if the write-down is too high. In order to prevent Greece defaulting and the disastrous knock-on effect this would have on the European and global banking systems, the process must be voluntary, explains the European Central Bank. Representatives of member states' treasuries and the IIF bank lobby group have been in non-stop talks in Brussels for days now.
Does the Commission want budget surveillance in Greece to continue indefinitely, as Germany is arguing? Rehn's spokesperson said the fact-finders were not only there to draw up a quarterly report and surveillance was covering a greater area but the plan was not to run the finances of Greece or any other country. The spokesperson mentioned rumours (already scotched by the Commission) that member states want to force structural reforms on the country, using the European Commission's Structural Fund task force to this end. Rehn's aide said this would not be possible either politically or legally, but tighter economic and budget surveillance would be introduced at the end of the year or January 2012 in all member states, including Germany, when the new Stability and Growth Pact comes into force. (MB/transl.fl)