European finance ministers voiced confidence that Greece will pull off a successful bond buyback, the key element in a revamped effort to stem the debt crisis in the country where it started.
“I’m confident it will go well,” French Finance Minister Pierre Moscovici told reporters after euro-area finance chiefs met in Brussels. “It seems to be happening under satisfactory conditions.”
European governments are counting on the buyback as a market-based way of cutting Greece’s debt, paving the way for continued aid payouts. Finance ministers set a Dec. 13 meeting to release the next 34.4 billion euros for Greece and possibly wrap up bailout talks with Cyprus, which would become the fifth country to tap international aid since the crisis erupted in late 2009.
Once dismissed by European officials as a high-risk, low- reward method of debt reduction, the buyback became part of the Greek package after Germany rejected the writeoff of official loans as a way of easing the country’s financial plight. The euro fetched $1.3070 as of 7:47 a.m. in London from $1.3054 yesterday, when it touched $1.3076, the most since Oct. 23.
German Chancellor Angela Merkel has since indicated, in a Dec. 2 Bild newspaper interview, that official debt relief might be in the offing, as long as Greece starts posting operating budget surpluses in 2014 or 2015. That timeline would put off a decision to lump German taxpayers with losses on loans to Greece — something Merkel promised would never happen — until after a German election in late 2013.
To persuade the International Monetary Fund to continue chipping in a third of the Greek loans, the euro ministers last week announced debt-reduction steps including lower bailout loan rates and a recycling of the European Central Bank’s profits on Greek bonds back to the Athens treasury.
In all, the measures will trim Greece’s debt as of 2020 to 124 percent of gross domestic product from a previous estimate of 144 percent. The buyback would be the biggest component, lopping 11 percentage points off the debt.
“It’s all going in the right direction,” Luxembourg Finance Minister Luc Frieden said. Austrian Finance Minister Maria Fekter said she is “very confident” that the bond operation will work out.
The buyback is for the 62 billion euros of new bonds issued when Greece carried out history’s biggest writedown of privately held debt in March. Greece offered to buy bonds from the market at 33.1 percent of face value, above a target set by creditors which was estimated at 28.1 percent by Royal Bank of Scotland Group Plc analysts.
“It looks as if it will be successful, or if they miss the target, they will miss it by a small margin,” said Spyros Politis, chief executive officer of Athens-based TT-ELTA AEDAK, which oversees about 300 million euros of assets and owns Greek government debt. “Anything that reduces the overall debt burden is good.”
At the same time, a higher buyout price would translate into less debt reduction on each bond. Greek bonds rose for a third day, pushing the 10-year yield below 15 percent for the first time since the March debt restructuring. Greece’s tender offer runs until 5 p.m. London time on Dec. 7.
Via – Bloomberg