LONDON — Greek political leaders continued to struggle Wednesday to secure agreement on new austerity measures to be presented to the country’s financial backers in the coming days.
Driving the talks has been a clear recognition that the ever-worsening collapse of the Greek economy will require another increase in bailout funds — money that will not be forthcoming until the rest of Europe is persuaded that Greece is serious about taking such steps as firing more public-sector workers and cutting private-sector wages.
The Prime Minister Lucas Papademos was to meet leaders of the three parties supporting his interim government later Wednesday to go over a draft agreement reached with the country’s international creditors.
One option that is still being actively discussed would be for the European Central Bank to exchange its portfolio of more than 50 billion euros, or $66 billion, in Greek bonds for securities issued by Europe’s main rescue fund.
Crucially, the swap would be priced not at the bond’s face value but at the reduced price at which the central bank bought the securities, thus allowing Greece to benefit from the discount.
These discussions have been ongoing for the better part of a month now and people involved in them say that the swap is not yet a done deal.
For it to take place, they say, Greece would need to reach an agreement with its private sector creditors on a restructuring and — perhaps more importantly — convince its European partners and the International Monetary Fund that it is ready to push through another set of tough economic reforms.
“The E.C.B. won’t do anything until the debt restructuring deal is complete and party leaders in Greece have agreed to reforms,” an official from the so-called troika group of institutions that are providing loans to Greece said on condition of anonymity.
To avoid a default this year, Greece needs financial assistance of 130 billion euros. The first installment is expected to be a 89 billion euro tranche in March to cover a 14.4 billion euro bond repayment.
A surprise plunge in government revenues for January of this year — spurred by an 18 percent fall in value-added tax receipts, Greece’s primary revenue source — is the latest sign that the deep recession will cause Greece to once again miss its budget deficit target.
It has also become evident that Greece’s ambitious goal of raising 9.3 billion euros this year through privatizations is going to fall short due to a lack of international interest. Officials involved in the privatization process say that 4.7 billion euros is a more realistic target, though many believe even this will be hard to meet.
European officials now estimate that Greece will need at least another 15 billion euros in 2012 to close its financing gap.
But with the I.M.F. making it known that it will not increase its loans to Greece in light of its deteriorating debt profile, the burden to come up with the extra funds has now fallen upon euro zone governments, and in particular Germany as the strongest.
The swap by the E.C.B., if it happened, would gain Greece a reduction in its debt of as much as 10 billion euros. That would provide a much needed boost for Greece and also give comfort to the I.M.F., which has come to believe that without a sharper reduction in its debt, Greece will not be in a position to make good on it over the long term.
By receiving bonds issued by the European Financial Stability Facility in return, the E.C.B. would not have to record a loss on the bonds along with private sector investors when the terms of the long awaited restructuring of Greece’s debt are finally imposed.
The 440 billion euro E.F.S.F. could then either lend Greece the funds to buy back the bonds at a discount, or it could participate in the debt restructuring deal by swapping the bonds for new longer term securities.
Private bond holders, who are expected to take a 70 percent hit on their holdings, have demanded that the E.C.B. be required to take a loss on its portfolio. The bank, however, has fiercely resisted such suggestions, given that it has a portfolio of more than 100 billion euros worth of bonds belonging to Portugal, Spain and Italy in addition to Greece.
But as the specter of a Greek default grows near, the central bank appears to be slowly succumbing to intense political pressure, in particular from the I.M.F., that it too make a contribution to easing Greece’s debt load.
Another person directly involved in the negotiations, who spoke on condition of anonymity because the talks are still ongoing, said it was “likely” that the E.C.B. would eventually participate, but that the central bank, backed by Germany, does not want to set a potential precedent for other countries.
The Institute for International Finance, which is leading the negotiations for the more than 30 private sector banks involved, is meeting with members in Paris Wednesday and Thursday to iron out remaining wrinkles and legal issues associated with the debt reduction initiative. A deal could emerge as soon as this week, despite earlier delays, the person involved in the talks said.
nytimes.com
Driving the talks has been a clear recognition that the ever-worsening collapse of the Greek economy will require another increase in bailout funds — money that will not be forthcoming until the rest of Europe is persuaded that Greece is serious about taking such steps as firing more public-sector workers and cutting private-sector wages.
The Prime Minister Lucas Papademos was to meet leaders of the three parties supporting his interim government later Wednesday to go over a draft agreement reached with the country’s international creditors.
One option that is still being actively discussed would be for the European Central Bank to exchange its portfolio of more than 50 billion euros, or $66 billion, in Greek bonds for securities issued by Europe’s main rescue fund.
Crucially, the swap would be priced not at the bond’s face value but at the reduced price at which the central bank bought the securities, thus allowing Greece to benefit from the discount.
These discussions have been ongoing for the better part of a month now and people involved in them say that the swap is not yet a done deal.
For it to take place, they say, Greece would need to reach an agreement with its private sector creditors on a restructuring and — perhaps more importantly — convince its European partners and the International Monetary Fund that it is ready to push through another set of tough economic reforms.
“The E.C.B. won’t do anything until the debt restructuring deal is complete and party leaders in Greece have agreed to reforms,” an official from the so-called troika group of institutions that are providing loans to Greece said on condition of anonymity.
To avoid a default this year, Greece needs financial assistance of 130 billion euros. The first installment is expected to be a 89 billion euro tranche in March to cover a 14.4 billion euro bond repayment.
A surprise plunge in government revenues for January of this year — spurred by an 18 percent fall in value-added tax receipts, Greece’s primary revenue source — is the latest sign that the deep recession will cause Greece to once again miss its budget deficit target.
It has also become evident that Greece’s ambitious goal of raising 9.3 billion euros this year through privatizations is going to fall short due to a lack of international interest. Officials involved in the privatization process say that 4.7 billion euros is a more realistic target, though many believe even this will be hard to meet.
European officials now estimate that Greece will need at least another 15 billion euros in 2012 to close its financing gap.
But with the I.M.F. making it known that it will not increase its loans to Greece in light of its deteriorating debt profile, the burden to come up with the extra funds has now fallen upon euro zone governments, and in particular Germany as the strongest.
The swap by the E.C.B., if it happened, would gain Greece a reduction in its debt of as much as 10 billion euros. That would provide a much needed boost for Greece and also give comfort to the I.M.F., which has come to believe that without a sharper reduction in its debt, Greece will not be in a position to make good on it over the long term.
By receiving bonds issued by the European Financial Stability Facility in return, the E.C.B. would not have to record a loss on the bonds along with private sector investors when the terms of the long awaited restructuring of Greece’s debt are finally imposed.
The 440 billion euro E.F.S.F. could then either lend Greece the funds to buy back the bonds at a discount, or it could participate in the debt restructuring deal by swapping the bonds for new longer term securities.
Private bond holders, who are expected to take a 70 percent hit on their holdings, have demanded that the E.C.B. be required to take a loss on its portfolio. The bank, however, has fiercely resisted such suggestions, given that it has a portfolio of more than 100 billion euros worth of bonds belonging to Portugal, Spain and Italy in addition to Greece.
But as the specter of a Greek default grows near, the central bank appears to be slowly succumbing to intense political pressure, in particular from the I.M.F., that it too make a contribution to easing Greece’s debt load.
Another person directly involved in the negotiations, who spoke on condition of anonymity because the talks are still ongoing, said it was “likely” that the E.C.B. would eventually participate, but that the central bank, backed by Germany, does not want to set a potential precedent for other countries.
The Institute for International Finance, which is leading the negotiations for the more than 30 private sector banks involved, is meeting with members in Paris Wednesday and Thursday to iron out remaining wrinkles and legal issues associated with the debt reduction initiative. A deal could emerge as soon as this week, despite earlier delays, the person involved in the talks said.
nytimes.com
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