Euro zone officials to meet Wed to hammer out Greece deal
Mon Jul 18, 2011 11:50am EDT
* All options for reaching sustainable Greek debt still open
* Greek bond buy-back idea popular, would not be more costly
* Final solution could be a mix of bond buy-back and swap
By
Jan Strupczewski
BRUSSELS, July 18 (Reuters) -
Euro zone officials will meet on Wednesday to narrow down a horde of options to make Greek debt more sustainable and draft a
deal on another Greek bailout for euro zone leaders to approve on Thursday, euro zone sources said.
The talks, likely to last until leaders meet at 1000 GMT on Thursday, will be conducted by deputy
finance ministers, treasury heads and junior central bankers that prepare monthly meetings of euro zone finance ministers.
The group is to be reinforced by the closest economic advisers of
euro zone leaders, one euro zone official said.
"It is going to be very much an up to the last minute thing," euro zone officials involved in the talks, who did not wish to be named, said.
"No option is now being excluded -- that's how messy it is at the moment," a second euro zone official said.
There is a growing sense of urgency to find a solution to the euro zone crisis after Italian and Spanish bond yields rose sharply last week and topped 6 percent on Monday, showing how easily contagion from Greek public finances can spread.
But the complexity of the problem and conflicting interests of the public and private sectors make a deal difficult.
"Basically, all the options you can possibly think of are still under discussion and you can imagine how complicated it gets. If only we could rule out something. But that has not happened yet," one of the officials said.
Not even solutions which would entail a temporary downgrade of Greek
bonds to a selective default rating were now excluded.
This has been taboo for finance ministers in the past, and still is for the European Central Bank (ECB), but officials said that while policymakers would prefer to avoid such a downgrade, it no longer limited the options under consideration.
"If it is possible to have reasonable assurances that it (a selective default) would be only on a very temporary basis, then it could of course be tolerated," a third euro zone official involved in the talks said, adding that "temporary" meant no more than a few weeks, or a month maximum.
"Then there is the question of what to do with the ECB -- we would have to provide some kind of additional collateral to the ECB for this period when Greek paper is in selective default," the official said.
One option discussed in the past under such a scenario was that the euro zone bailout fund, the European Financial Stability Facility or EFSF, would reimburse the ECB for any losses on Greek bonds that the central bank might incur by accepting them as collateral, a fourth source said.
BUY-BACKS BACK
The idea of a Greek buy-back operation, rejected by ministers earlier this year, is now firmly back on the table and quite popular, but financing it remains a challenge.
Officials said that if applied, a bond buy-back would not necessarily mean that the euro zone would have to spend more money than already planned on the second Greek package.
"If you do as some have suggested, that there is a short period for buy-backs, a window for that, you are doing what could be done over three years in a period of a few weeks. That would not involve more money ... just different timing," the second official said, adding it is one of the options suggested by private bondholders.
"In the end, the whole thing is about private debt being replaced by public debt. To do it over three years, or to do it over three months, still means the same amount of money that needs to be replaced," the source said.
The third source said a potential solution could involve a mix of the bond buy-back and a Greek bond swap idea, floated by Germany in June, where shorter Greek maturities would be replaced by longer maturity paper, possibly 30-year bonds.
"You may have a combination of buy-back and swap and also some kind of Brady bond," the third official said, referring to a 1989 swap of Latin American debt for tradable securities, some of them guaranteed, proposed by then U.S. Treasury Secretary Nicholas Brady.
"The private sector would like both a voluntary swap and a debt buy-back -- anything that would reduce uncertainty -- but of course there is the caveat that most likely they will ask for collateral for the new, 30-year Greek bonds," the source said.
Such collateral could be in the form of paper issued by the EFSF or any other bonds which have a AAA rating, the official said.
The problem with such collateral is how much Germany and France, the two biggest euro zone countries who would shoulder the biggest share of the guarantees, would be willing to agree to.
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Occhio, le carte da giocare (in bene o in male) sono tra domani e mercoledì.
