Brussels, 31/01/2012 (Agence Europe) - There is light at the end of the tunnel on partial restructuring of the Greek debt, if we are to believe the comments made by European leaders on Monday 30 January after the European summit. An agreement on this would facilitate finalisation of the 2nd Greek bailout with public funding of around €130 billion. The question of holding a special summit was not settled, as an Ecofin Council meeting may suffice.
European Council President Herman Van Rompuy hoped the new Greek programme would be finalised by the “end of the week”, in time for private creditors to be able to carry out the exchange of debt securities mid February. After having briefly informed the European Council, Greek Prime Minister Lucas Papademos met, in small committee, with Herman Van Rompuy, Jörg Asmussen, a member of the ECB Executive Board, and the presidents of the European Commission, Jose Manuel Barroso, and of the Eurogroup, Jean-Claude Juncker. Barroso said that the Greek case would remain “exceptional” (see EUROPE 10483). Any agreement should be the subject of a formal and unambiguous commitment by the main Greek political parties, he said. French President Nicolas Sarkozy had every hope that the situation would be the subject of a final agreement in coming days. He felt the matter should be settled as it “has being poisoning the European agenda for months”. In his view, it will be up to the ECB to take a fully independent decision on whether it agrees to accept a loss on the Greek bonds that it holds.
The European summit opened on Monday to the backdrop of the polemic between Germany and Greece. The former is calling for increased European oversight of the latter's compliance with its budgetary and macro-economic commitments (see related article). Greece, and other member states, rejected the idea outright. Juncker was “strongly opposed” to the idea. Italy's Prime Minister Mario Monti, found the proposal eccentric and unpleasant saying it had not been evoked at the highest political level.
“Greece is a sovereign country. It is with the Greeks that things have to be done. That doesn't mean there should not be any monitoring. There can be no question, however, of putting a country under the supervision of a European commissioner”, said Sarkozy. Putting a commissioner to oversee matters in Greece would be “unreasonable, undemocratic and inefficient”. Given the emotional nature of the debates, it is important that swift progress is made, said Merkel. Legislative elections are not far off (in mid-March) and Greece needs more money (€15 billion in mid-March).
Is the German proposal that priority be given to reimbursing private creditors before paying the salaries of Greek civil servants acceptable? “It is a question that is worthy of consideration, because, if we find a solution that allows a mechanism of this kind to be put in place, it would reassure creditors since they would be certain to get their money back”, suggested Jean-Claude Juncker.
Private sector involvement in the second Greek bail-out has lasted several months. The aim is to reduce the proportion of Greek public debt from 160% of GDP to 120% by 2020 by means of a voluntary exchange in Greek bonds. In line with European Council decisions at the end of October, Greece's private creditors will exchange the bonds which will mature in the short to medium term for 30-year bonds in part backed by the European Financial Stability Facility (see EUROPE 10483). €30 billion of the €130 billion of public money will guarantee the operation. In exchange, creditors will have to accept a haircut of some 50% on the value of the bonds. The Eurogroup wants the interest rates set on the new bonds to be below 4%, and 3.5% until 2020 (see EUROPE 10538). Private creditors are prepared to accept this on condition that the rate of interest also develops along with growth in Greece. At the same time, the “troika” (Commission, IMF and ECB) is in Athens negotiating with the Greek government on structural measure to be implemented in exchange for international financial support. (MB with EH/FG/AN/transl.jl/rt)