Brussels, 08/03/2012 (Agence Europe) - On Friday 9 March, eurozone finance ministers will hold a videoconference to discuss private sector involvement in the planned write-down of Greek debt, the biggest such operation ever to be carried out. On Thursday 8 March, the Greek government's offer to the private sector expired (see EUROPE 10565). Once the percentage of private lenders going along with the write-down is officially divulged (agreeing to a 73% write-down in the face value of their bonds), then the Eurogroup will discuss with Greek finance minister Evangelos Venizelos whether the recalcitrant remainder should be forced to take part in the write-down as well.
By the afternoon of Thursday 8 March, some 60% of private lenders (holding €124 billion-worth of Greek bonds) said that they would take up the write-down, according to Greek newspaper Ekathimerini. They include big Greek banks, which own most of the bonds, and more than 30 European banks and insurance companies (such as Deutsche Bank, Commerzbank, BNP Paribas, Société générale, HSBC and Assicurazioni Generali). The Greek government says it is optimistic that the write-down offer will be successful, and money markets seemed to agree, ending the day slightly up.
Venizelos has on several occasions warned Greece's private investors that he will make use of special clauses recently introduced into Greek legislation to force up to 86% of the private sector to participate in the write-down. This is close to the objective of 90%, which would reduce the country's debt from 160% at present to 120% of GDP, as required in the second bailout programme for Greece as laid down by the Eurogroup (see EUROPE 10558).
Making use of the special legislation could make the write-down compulsory, of course, rather than voluntary, because some lenders would be forced to agree to lose money and get lower returns than expected when they took out the bonds. In French newspaper Le Monde, Jean Lemierre, advisor to French bank BNP Paribas and one of the private sector negotiators for the International Institute of Finance that is negotiating with the Greek government, said that if the operation were no longer voluntary and the special collective action clauses are used to compensate for too low a private sector involvement, then Greece and the European Union would have to review matters and this could downgrade the offer for lenders. Some of Greece's lenders, investment funds, for example, see it in their interest to aim at a Greek default because they would then like to make use of their insurance contracts (credit default swaps).
The ISDA, an umbrella group for derivatives traders, which initially said that the write-down would not amount to a partial default, is expected to meet in emergency session if the special collective action legislation is used of by the Greeks. If the ISDA changes its view, then it would mean that credit default swaps would set in and pay out several billion euros in compensation. The sums involved are not high enough to be likely to lead to instability, despite the high level of secrecy in this domain. (MB/LC/transl.fl)
ETUC statement on Greece
The ETUC Executive Committee declares its support for the Greek trade unions in their struggle against the unprecedented IMF-EU-ECB onslaught that methodically dismantles core labour rights, uproots labour institutions and demolishes the social state, depriving workers of vital institutional capabilities to defend themselves. Greece is being pushed to one of the deepest economic slumps in modern times, forecast to cumulatively reach wartime recession levels of 25%-30%. We express our indignation at the proposed prioritising of loan repayments over pensions, salaries or any social need via an escrow account where all public Greek revenues will be collected, pushing the country soon into an internal default. The ETUC reiterates its proposal for an EU-type “Marshall Plan” approach aimed at growth, employment and innovative investment. We call on Greece's creditors and the Greek authorities to refrain from further squeezing of wages, pensions and imposing new taxes. It is prime time to insist on alternative debt and deficit-reducing options. Equitable tax collection, action against tax fraud, effective use of structural funds available for investment, revisiting Greece's excessive defence spending and easing its defence needs by a European guarantee for Greek frontiers, and cutting superfluous spending and not social expenditure are just some of the available alternatives. (MB/transl.fl)