Brussels, 19/01/2012 (Agence Europe) - The European Commission has pointed out that agreement on private sector involvement in the second Greek bailout programme must take the form decided by the European Council of 26-7 October 2011 and be voluntary in nature. Once the deal has been agreed, the private sector negotiators will announce it to all Greek bond holders, who will then decide whether they want to participate. At that point, it will be possible to see how much of the private sector will climb on board (it is hoped that around 90% will do so). The Commission is not in direct talks with the negotiators, but will be assessing the agreement to see whether it complies with what was decided by the October European Council (see EUROPE 10483).
On Thursday 19 January, a spokesperson for EU Commissioner for the Euro Olli Rehn hoped that the private investors would reach agreement with the Greek government as soon as possible, ideally ahead of the summit of EU leaders in Brussels on 30 January although no official deadlines have been set. It is clear that this tricky issue will be on the agenda of eurozone finance ministers at the Eurogroup meeting on Monday 23 January.
In the final leg of the talks, a standoff has emerged between the private sector and the Greek government because the banks and other investors are trying to get a better deal. Some speculators and others are playing the worst case scenario card because they would benefit from a forced default of the country, being covered by such an eventuality by credit default swaps. Above all, Europe wants to avoid a “credit event” that would have unpredictable consequences for the rest of the financial system. Putting pressure on the private investors, Greek Prime Minister Lucas Papademos warns that he has not ruled out the option of forcing the private sector to agree to the offer on the table by introducing special clauses in the Greek bond contracts whereby the deal will apply to all parties as soon as a majority of bond-holders have agreed to it.
The role (if any) of the European Central Bank is not clear. It holds nearly €40 billion-worth of Greek bonds and has senior status, guaranteeing it a full return on its investment.
The Greek government wants to announce the broad outlines of private sector involvement in the second bailout programme to the Eurogroup meeting on 23 January. From the €130 billion of public money for the second bailout, €30bn will be used as an incentive to get private investors to agree to a write-down in the face value of their bonds in return for partial guarantees from the European Financial Stability Facility. The idea is to reduce the Greek debt from 160% of GDP to 120%. In March 2012, Athens will have to roll over more than €15 billion of its public debt. (MB/transl.fl)