Greece talks
Talks between Greece and its private creditors over a planned debt exchange program have advanced, a local newspaper reports Monday, after the two sides reached a deal to apply U.K. law to new bonds issued by the Greek government.
According to financial daily Imerisia,
the two sides also agreed the new bonds would hold the same legal status as those issued by Europe’s temporary bailout fund, the European Financial Stability Fund, or EFSF. This means that
the bonds would enjoy a certain seniority over other government debt instruments.
On Friday, the Greek government and a group representing its private creditors said in a joint statement they had made progress towards a voluntary solution to the nation’s debt problems.
In late October, euro-zone governments called on Greece to secure a 50% write-down in the value of its outstanding bonds as a condition for a EUR130 billion bailout package for the country.
But they said the participation of private investors should be voluntary, in order to avoid payouts under credit default swaps that might inflict further damage on the currency area’s fragile financial system.
If an agreement is reached, about EUR200 billion of debt held by private investors will by cut by 50% and save Greece some EUR5 billion a year in debt-servicing costs.
Greece has proposed a debt exchange under which investors would swap old government bonds for new ones worth 35% of their old face value, and with a coupon of around 4%-5%. It is also throwing in a one-off cash payment equal to about 15% of the old bonds’ value as an enticement, totaling around EUR30 billion.
The IIF has proposed a swap trading old bonds for new ones with a 50% lower face value, and is demanding a coupon of around 8%, plus guarantees for the principal of the new bonds estimated around EUR30 billion. Those guarantees would likely come from the EFSF.
According to the newspaper,
Greece and the steering committee for the private creditors will meet again this week to discuss remaining details of the deal. They must yet agree on the interest rate the new bonds will carry, although analysts familiar with the talks say the two sides are moving towards an agreement.
EasyForexNews Research Team