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IIF's Dallara: Euro Zone Has Taken Big Step
By STEPEHEN FIDLER And COSTAS PARIS
BRUSSELS—The leading private-sector figure in Greece's debt talks said Tuesday that euro-zone finance ministers took an important step Monday night toward finding a lasting solution to the country's debt problems.
Charles Dallara, managing director of the Institute for International Finance, said a statement from the ministers after they met Monday night was "an important signal" suggesting they were converging on "more fundamental approaches" for handling Greece's debt.
He said options under consideration included using funds from the European Financial Stability Facility, the euro-zone's bailout fund, "to support, not only maturity transformation for Greece, but also techniques to reduce the stock of debt, including bond exchanges and debt buybacks."
Debt buybacks would aim to retire market bonds and harvesting the big discounts to face value, sometimes of more than 60%, at which they trade to reduce Greece's debt burden.
Mr. Dallara, who met European Union economics commissioner Olli Rehn and other officials Tuesday morning in Brussels, said in a telephone interview afterward that he expected movement on these questions to follow fairly soon.
Efforts to reduce Greece's €350 billion ($489 billion) debt burden would probably involve the country being declared in "selective default" by rating agencies. But in the past such a rating assessment has been temporary, lasting no more than six months.
"There is a world of difference between a temporary selective default that is part of an orderly process, and a disorderly default. Markets wouldn't be disrupted by a selective default if it were in the framework of a lasting solution for Greece," Mr. Dallara said.
A proposal from the IIF, which represents more than 400 financial institutions worldwide, was put before finance ministers Monday night. It backed big repurchases of Greek debt, and other measures to help Athens cut its debt burden. Such methods could potentially include bond exchanges which replace existing bonds with bonds that are less costly for Athens to service.
"Plans focused on covering Greece's financing needs without debt reduction will not work at this stage to stabilize markets and reverse contagion," the IIF proposal said.
This proposal is now the road map for advancing talks, said a euro-zone official participating in the euro-zone meetings. The shift marks the growing realization that not enough of Greece's bank creditors would agree to voluntarily roll over their Greek debt maturing over the next few years.
The proposal involves measures to provide Greece with money to buy back up to €50 billion of its bonds held by the European Central Bank. It also includes measures to slash interest payments on official loans made to Greece and extend their repayment period. Now Greece's international creditors appear to be coming to terms with the idea that, if a Greek default is unavoidable, the new task is to come up with the best plan to make it temporary.
"There are two ways to buy back Greek debt. One is the European Financial Stability Facility to buy bonds in the secondary market. But this could be challenged because of the [European Union's] no-bailout clause. The other is to give money to Greece to buy back its loans at a discounted price," the official said.
If Greece gets the money to buy back its bonds from the ECB it would pay only about 70% of the face value of the bonds, effectively retiring its debt at a 30% discount. The ECB, which paid less than face value for the bonds as part of a program to support the Greek bond market, should, in theory, get back more or less what it paid for them.
However, there are some obstacles with the idea of debt buybacks financed by the EFSF, according to another person familiar with the talks. It could potentially attract challenges in national courts as a violation of the euro-zone's so-called no bailout rule. Also large buybacks in the secondary market could move the price of Greek bonds higher, reducing the amount of debt that could be retired. "It's a model that can still easily backfire," the person said.
However, a bond exchange would be less likely to drive bond prices higher, while purchases from the ECB would have no direct impact on market prices.
Dutch Finance Minister Jan Kees de Jager said Tuesday a Greek selective default is no longer excluded. Finance ministers have broken from the "contradictory statement [that] on the one hand you are saying you want substantial private-sector involvement and on the other hand you have at all times to avoid a selective default," he said.
(The Wall Street Journal)
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Interessante, da leggere.
By STEPEHEN FIDLER And COSTAS PARIS
BRUSSELS—The leading private-sector figure in Greece's debt talks said Tuesday that euro-zone finance ministers took an important step Monday night toward finding a lasting solution to the country's debt problems.
Charles Dallara, managing director of the Institute for International Finance, said a statement from the ministers after they met Monday night was "an important signal" suggesting they were converging on "more fundamental approaches" for handling Greece's debt.
He said options under consideration included using funds from the European Financial Stability Facility, the euro-zone's bailout fund, "to support, not only maturity transformation for Greece, but also techniques to reduce the stock of debt, including bond exchanges and debt buybacks."
Debt buybacks would aim to retire market bonds and harvesting the big discounts to face value, sometimes of more than 60%, at which they trade to reduce Greece's debt burden.
Mr. Dallara, who met European Union economics commissioner Olli Rehn and other officials Tuesday morning in Brussels, said in a telephone interview afterward that he expected movement on these questions to follow fairly soon.
Efforts to reduce Greece's €350 billion ($489 billion) debt burden would probably involve the country being declared in "selective default" by rating agencies. But in the past such a rating assessment has been temporary, lasting no more than six months.
"There is a world of difference between a temporary selective default that is part of an orderly process, and a disorderly default. Markets wouldn't be disrupted by a selective default if it were in the framework of a lasting solution for Greece," Mr. Dallara said.
A proposal from the IIF, which represents more than 400 financial institutions worldwide, was put before finance ministers Monday night. It backed big repurchases of Greek debt, and other measures to help Athens cut its debt burden. Such methods could potentially include bond exchanges which replace existing bonds with bonds that are less costly for Athens to service.
"Plans focused on covering Greece's financing needs without debt reduction will not work at this stage to stabilize markets and reverse contagion," the IIF proposal said.
This proposal is now the road map for advancing talks, said a euro-zone official participating in the euro-zone meetings. The shift marks the growing realization that not enough of Greece's bank creditors would agree to voluntarily roll over their Greek debt maturing over the next few years.
The proposal involves measures to provide Greece with money to buy back up to €50 billion of its bonds held by the European Central Bank. It also includes measures to slash interest payments on official loans made to Greece and extend their repayment period. Now Greece's international creditors appear to be coming to terms with the idea that, if a Greek default is unavoidable, the new task is to come up with the best plan to make it temporary.
"There are two ways to buy back Greek debt. One is the European Financial Stability Facility to buy bonds in the secondary market. But this could be challenged because of the [European Union's] no-bailout clause. The other is to give money to Greece to buy back its loans at a discounted price," the official said.
If Greece gets the money to buy back its bonds from the ECB it would pay only about 70% of the face value of the bonds, effectively retiring its debt at a 30% discount. The ECB, which paid less than face value for the bonds as part of a program to support the Greek bond market, should, in theory, get back more or less what it paid for them.
However, there are some obstacles with the idea of debt buybacks financed by the EFSF, according to another person familiar with the talks. It could potentially attract challenges in national courts as a violation of the euro-zone's so-called no bailout rule. Also large buybacks in the secondary market could move the price of Greek bonds higher, reducing the amount of debt that could be retired. "It's a model that can still easily backfire," the person said.
However, a bond exchange would be less likely to drive bond prices higher, while purchases from the ECB would have no direct impact on market prices.
Dutch Finance Minister Jan Kees de Jager said Tuesday a Greek selective default is no longer excluded. Finance ministers have broken from the "contradictory statement [that] on the one hand you are saying you want substantial private-sector involvement and on the other hand you have at all times to avoid a selective default," he said.
(The Wall Street Journal)
***
Interessante, da leggere.
