Brussels, 09/01/2015 (Agence Europe) - Two economists from the Bruegel thinktank unveiled a number of options on Friday 9 January to reduce Greece's debt that would not leave its lenders out of pocket. By combining three measures that have already been discussed in European circles, they calculate that it would be possible to cut the net value of the debt by up to 17%.
The first three options have already been discussed, viz. reducing the lending rate for the 'Greek Loan Facility' by extending maturity or even extending the maturity of loans from the EFSF, the former eurozone bailout fund that has now been replaced by the ESM bailout fund. By combining the three options, it would be possible to make a 17% net reduction in the Greek debt because Bruegel says the measures reinforce one another.
The fourth option studied by Bruegel according to articles in the press would be a loan from the ESM to enable Greece to buy public debt held by the ECB under the SMP programme. This would reduce earnings, but Bruegel says that bonds held by the EB are interest-free only because Eurogroup decided in 2012 to hand over the profits from the ECB's Greek bond portfolio, as well as the profits from national central banks' Greek bond holdings, to Greece. Therefore, buying back the remaining Greek government bond holdings of the ECB and national central banks would not lead to any gain, but would, by contrast, increase the overall debt servicing costs for Greece.
A fifth option that has been talked about in the media is for Greece to swap its floating interest rate loans to fixed-rate loans, but if this causes market rates to rise it would not necessarily reduce the overall debt burden without generated losses for counterparties. In fact, the operation could lead to an increase in Greece's debt servicing costs, because the interest rate of a fixed-rate loan may include a term premium over a floating rate loan. Bruegel says that swapping current loans for GDP-indexed loans, if it does not lead to an expected loss to eurozone lenders, then it would also not lead to an expected reduction of net present value of Greek debt servicing costs. Finally, the EIB could purchase certain Greek state-owned enterprises, prepare them for privatisation and privatise them later. The major difficulties with this proposal relate to the uncertainties concerning the volume of assets suitable for privatisation, the fair value of these assets and the time and costs involved in preparing these assets for sale. Therefore this is not a proposal which could be agreed upon in the near future.
On Friday, a man who might be finance minister in a Syriza government said on Greek television that his party 'might' request a six-month extension to the programme. (EL)