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live "Some" progress in the negotiations for the Greek PSI

27 January 2012 / 14:01:12  GRReporter
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"Discussions here in Athens today focused on legal and technical issues on the voluntary PSI and some progress was realized," reads the official release of the Institute of International Finance, after yesterday's meeting of its Executive Director Charles Dallara with Greek Prime Minister Lucas Papademos. Today, the two men will discuss the matter again.
    Technical issues relate to the interest rate on recycled bonds and according to information of, private sector bondholders have agreed to an average interest rate of 3.7% with a premium when the Greek economy starts to grow. Legal issues relate to the legislative triggering of the collective participation clause, which will oblige all private sector bondholders to participate in the debt haircut.
    The Athens Stock Exchange has responded with enthusiasm to the renewed negotiations between Greece and private sector bondholders and its index exceeded 770 points. The big winners yesterday were Piraeus Bank, Alpha Bank and Eurobank EFG the shares of which jumped by 30% only in a day. Stock analysts note that the investment came mainly from the local market.
    Despite the stock enthusiasm, economists in Greece warn that it is in the country’s interest for the PSI negotiations to fail. According to Yannis Varoufakis, there is nothing to fear if the Greek debt rescheduling is declared a credit event, triggering the Credit Default Swaps. The main losers according to the economist will be Goldman Sachs and American Insurance Group, which have issued them. He argues that German and French banks have also developed and sold complex investment instruments similar to Credit Default Swaps, which will be also triggered if Greece defaults and the banks will lose money. "Greece has already defaulted, except that we called the Greek default PSI," concludes Yannis Varoufakis.
    In an interview with the Austrian newspaper Standard, Eurogroup President Jean-Claude Juncker expresses his support of the involvement of states-bondholders in the Greek debt haircut. He does not specify the percentage of the haircut, but argues, "The Greek debt restructuring will fail with the involvement only of private banks." The International Monetary Fund urges Greece to reduce its debt to 120% of the GDP by 2020 in order to be able to serve it alone. Jean-Claude Juncker declares himself for the involvement of the European Central Bank in the Greek haircut, since it holds Greek bonds worth between 45 and 50 billion euro. "What the Institute of International Finance offers is a 70% haircut on the Greek debt. Our proposal is very attractive," Josef Ackermann, CEO of Deutsche Bank, told the German television N-TV. And Ackerman insists that "we all must contribute to solving the problem."
    Citing anonymous sources, Reuters said that the European Central Bank was hesitating whether to get involved in the Greek debt haircut. On Wednesday evening, there was a meeting of the Bank's management, which however failed to reach a decision. The European Central Bank bought Greek bonds at a price lower than their face value. Before Bloomberg TV, the Finance Minister of Sweden Anders Borg opposed the involvement of the institution in the Greek haircut, arguing that the bank would not be able to purchase securities of other troubled countries.
    Today, the International Monetary Fund is expected to release its report on the status of Greek debt.


Tags: Charles DallaraPSIAthens Stock ExchangeBank sharesPrivate sector bondholdersDebt haircutInterest rate on bonds
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