Brussels, 27/10/2011 (Agence Europe) - The financial sector has agreed to a voluntary contribution to the second Greek bailout and will contribute more than agreed at the previous eurozone summit on 21 July (see EUROPE 10483). The idea is for the private sector contribution to reduce the value of Greece's debt to 120% of GDP by 2020. From now until the end of the year, holders of Greek bonds can swap them for other bonds of half the face value. The new bonds will be covered by the new €30bn public guarantee system. For an investor holding a bond currently worth €100, the replacement bond will be worth €50, but some of it (perhaps 15%) will be more secure because backed by the EFSF bailout fund. Some €210bn-worth of Greek bonds are covered by this (of the total €350bn of Greek bonds), which explains how the €100bn figure mentioned after the Thursday 27 October summit was reached. The 27 October deal to halve the face value of Greek bonds owned by the private sector will cut the country's debt by more than the 21 July deal would have done because the 21 July deal (a 21% write-down) would only have cut the debt to 163% of GDP rather than 120%. It is possible that the private sector contribution process will be viewed as a partial default in which case the ECB would be given public funding so that it can continue to accept Greek bonds provided as collateral by banks borrowing ECB cash. The second Greek bailout will be financed from €130 bn in public funds and €100 bn in private cash. The bigger the haircut (write-down) in the Greek debt, the more difficult it will be to get the private sector to fall in with the bailout voluntarily and prevent Greece from defaulting. The European Banking Federation says in a press release that it is committed to responding to a coherent message from the Eurozone, although the 50% write-down in Greek bonds and the faster recapitalisation process will require enormous, exceptional effort. (MB/transl.fl)