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Greece and private bondholders get “closer” to an agreement

Date: Monday 30 Jan 2012

Greece and private bondholders get “closer” to an agreement

As has been the case for the last several months, the main headlines on Greece this morning are pointing to an imminent agreement with its private sector bondholders, represented by the Institute for International Finance (IIF). In fact, Greek Finance Minister Evangelos Venizelos announced yesterday that a final debt-swap pact will be concluded this week.

As an aside, Venizelos also dismissed a Financial Times’ weekend report of larger German oversight of Greece’s fiscal affairs and emphasized that Athens will maintain control over its budget. The FT report had suggested that a European Union “budget commissioner” would be given the power to veto spending and other financial decisions, but Venizelos said the article “ignores some key historical lessons”.

Meanwhile, and according to an IIF statement also issued yesterday, both sides are “close” to completing a voluntary exchange along the terms outlined by the Eurogroup's president Jean-Claude Juncker. “Further progress was made, building on the understandings reached on January the 27th on key legal and technical issues,” said the IIF. Juncker was looking for the new bonds to be issued to have a coupon “well below 3.5%” for the period up to 2020 and below 4% for the 30 year life of the debt. Sources cited by Bloomberg now say that the creditors are willing to accept an average coupon of 3.6%.

Private bondholders had already agreed to a 50% haircut, but most media reports now suggest this has risen to 70%. These investors hold approximately 60% of Greece’s €350bn in sovereign debt.

Greece needs to reach an agreement with its bondholders as one of the prerequisites to receiving a second bailout package from the International Monetary Fund, European Central Bank and the European Union worth €130bn.

Meanwhile, European leaders prepare to meet up in Brussels this afternoon at 1pm London Time for the EU summit. While they are expected to focus on the fiscal compact and the European Stability Mechanism (ESM), leaders will undoubtedly be sidetracked by the current situation in Greece.

JM

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