Brussels, 01/03/2012 (Agence Europe) - On Thursday 1 March, the eurozone finance ministers gave a positive assessment of the efforts undertaken by Greece in the ten days after the agreement in principle on the second Greek bailout (see EUROPE 10558). They said the efforts seemed to be enough to allow Greece's international lenders to start organising the partial write-down of the Greek debt, but it is only when they are certain that a sufficient number of private sector lenders will participate in the write-down that they will formally decide to pay the first instalment of the Greek aid (in order to prevent the country defaulting on its debt at the end of this month). The Eurogroup will meet again to discuss the matter on 9 March.
“The Eurogroup welcomes the assessment of the troika that Greece has made sufficient progress in completing the agreed prior actions. All required legislation by the parliament and the ministerial cabinet has been adopted, and a few pending implementing acts should be completed shortly. Ministers note with satisfaction that Greece thereby undertook decisive and swift legislative action in the areas of fiscal consolidation, revenue administration, pension reform, financial sector regulation and supervision and growth-enhancing structural reforms.” On Thursday, the Greek parliament passed emergency legislation to restrict healthcare spending (by merging hospitals and encouraging the use of generic medicines). Two days earlier, the government approved a law to make more than €3 billion of savings this year by means of cutting pensions for civil servants in excess of €1,300 a month and cutting private pensions. A 22% cut in the minimum wage in the private sector is also planned.
PSI. Alongside €130 billion of public money, the second Greek bailout will include a voluntary write-down of Greek bonds owned by the private sector, around €107 billion (a 53.5% write-down on the face value) in order to reduce the total debt from 160% of GDP to 120%. Under an offer from the Greek government, private lenders are being asked to exchange their bonds for new, 30-year, bonds at a reduced interest rate and under English, rather than Greek, law.
The Eurogroup has formally allowed the European bailout fund (EFSF) to boost the new Greek bonds with an additional €30 billion and has given the go-ahead for a €35bn deal to protect the Eurosystem (the ECB and central banks) that hold Greek bonds, after the recent downgrading of Greece into the junk bond category by the rating agencies. The Eurogroup also authorised the payment of €5.5 billion interest on maturing Greek bonds.
The eurozone finance ministers are continuing to apply maximum pressure on the Greek government, saying that Athens will receive the money it needs only if it meets all its commitments to the letter and on time. The ministers expect a sufficiently high participation in the private sector write-down before they will allow the first instalment of aid to be paid out. This should enable Greece to avoid default on 20 March, when it needs to roll over €15 billion. “The Eurogroup, however, reiterates that a successful PSI operation with high participation and a final positive assessment of the complete set of prior actions are necessary conditions both for the disbursements of these EFSF bonds and for the second programme.” At the European Parliament on Wednesday, Juncker said that 66% of private investors was required in the write-down in order for Greece to make use of the class action clauses it has introduced, which will force reluctant lenders to take part in the write-down and thus reduce the debt sufficiently, but this may lead to the calling in of CDS insurance contracts.
“We are waiting for the response of the market. As you know, the concrete form of the bond exchange is agreed with the private sector and everybody understands very well that we have four very important and attractive elements: the co-financing, the English law, the sweetener in cash and the GDP warrants. This is a very good, a unique offer”, commented Greek Finance Minister Evangelos Venizelos. (MB/transl.fl)