IIF’s Dallara Urges European Officials to Consider Greek Debt Buyback Plan
By Rebecca Christie - Jul 6, 2011 1:09 AM GMT+0200 Tue Jul 05 23:09:35 GMT 2011
Greece’s next rescue package is more likely to succeed if it includes a plan to retire outstanding debt through organized buybacks, said
Charles Dallara, managing director of the
Institute of International Finance.
A buyback fund of about 50 billion euros ($72 billion), for example, could reduce Greece’s outstanding debt as a proportion of gross domestic product by as much as 20 percent, Dallara said by phone yesterday. He spoke en route to Paris, where he will meet with about 20 banks and insurance companies today to discuss the role of bondholders in the new package.
The financial firms will discuss a proposal from French banks to roll over 70 percent of bonds maturing by mid-2014 into new 30-year Greek securities backed by AAA-rated collateral. European Union leaders want banks and insurers to voluntarily roll over about 30 billion euros of Greek bonds to support official loans by the EU and the
International Monetary Fund.
“We’re going to discuss a range of options there, including variations on the original French proposal as well as options relating to buybacks,” said Dallara. The Washington- based IIF represents more than 400 of the world’s biggest banks and insurers, including Frankfurt-based Deutsche Bank AG and BNP Paribas SA of Paris, and has led the investor talks.
The EU authorities are seeking a way to include banks in the rescue effort without putting Greece into default, even temporarily. While some analysts have criticized the French proposal as too generous to banks,
Standard & Poor’s said on July 4 even that plan would likely trigger a default rating.
Debating Buybacks
European authorities ruled out using bailout funds to retire Greek debt in March, a blow to European Central Bank President
Jean-Claude Trichet, who had pushed to give the EU’s 440 billion-euro rescue facility the power to buy debt in the open market and to finance buybacks. One year after the 110 billion-euro bailout that aimed to end the region’s debt crisis, Greece is in danger of defaulting without a new rescue package.
Dallara, 62, said a buyback would work best if frontloaded because debt could be bought more cheaply and on a large enough scale to bolster market confidence. Such a program could use a market-related pricing mechanism and target a range of maturities, he said. A Greek buyback agency might operate alongside the IMF program, which could fund the effort or otherwise reassure creditors, he said.
“Put that together with the primary surpluses which Greece intends to run from 2014 on, and you begin to see a much more manageable profile of the stock of Greek debt from around 2016 onward,” Dallara said.
Reducing Investors’ Risk
Debt buybacks would help markets and would be a lot simpler than some of the “very convoluted” plans under consideration, said
Gary Jenkins, head of fixed income at Evolution Securities Ltd. in
London. They might also prove politically unpalatable because they would improve conditions for private investors.
“It’s tidy, it’s clean, it would help on the margins with the overall debt level,” Jenkins said. However, “at a time when they want to involve private investors, they’re actually taking their risk away.”
Financial companies held informal meetings in Paris yesterday to prepare for today’s IIF talks. Deutsche Bank Chief Executive Officer
Josef Ackermann, who also chairs the IIF, joined German Finance Minister
Wolfgang Schaeuble in Berlin on June 30 to announce an agreement by the country’s banks and insurers to roll over Greek debt holdings.
Greek banks are willing to roll over their
government bonds as part of an EU rescue plan that will keep the country out of financial markets for three years, Finance Minister Evangelos Venizelos said in an interview with Bloomberg Television in
Athens yesterday. He also said
Greece must avoid having rating companies cut the country to “selective default.”
Greek banks are participating in the debt reduction talks, Dallara said.
“We understand their concerns,” Dallara said. “Obviously we need to be quite sensitive to their concerns in light of the essential requirement of sustaining ECB funding to them.”
(Bloomberg)
***
Il mio "naso" forse sentiva bene?
