March 25, 2023

Euro Zone Finance Ministers to Meet Again on Greek Bailout

Euro zone finance ministers are to gather in Brussels on Monday for their fourth meeting in four weeks. Last week, they hashed out a plan under which Greece can try to unlock a long-overdue bailout loan installment. The country needs the money desperately to avoid bankruptcy, to pay wages and pensions and to carry out economic overhauls demanded by its international creditors.

The finance ministers are expected to vet Greece’s planned response to a central provision of that plan: a buyback of some of the Greek bonds held by investors, at a discount, as a way to reduce its staggering debt load.

Greece has until Dec. 13 to make that happen, if it hopes to receive its next round of bailout money.

With the Greek economy continuing to fall, the meeting of finance ministers is coming against a backdrop of grim new data for the euro region as a whole. Despite an optimistic forecast Friday from the European Central Bank president that the euro zone would emerge from recession sometime in the second half of next year, the nearer-term data indicate that things may get worse before they possibly get better.

Figures released Friday showed euro zone unemployment rising to a new high in October, with nearly 19 million people — 11.7 percent of the 17-nation currency bloc’s work force — without jobs.

Greece’s international lenders froze aid in June because they perceived the government to be dragging its heels on fulfilling the terms of its bailout program. Since then, the country has accelerated the economic revamping and budget cuts that creditors have demanded.

But the economic outlook for Greece has worsened significantly in the interim — some critics blame the austerity program, in part — prompting the International Monetary Fund to put pressure on lenders, including Germany, to relieve some of the debt burden.

A centerpiece of those efforts, agreed upon last week, is the debt buyback. The plan is for the authorities in Athens to borrow European funds to purchase Greek bonds that are already trading at a deep discount from their face value.

The buyback plan may have allayed fears of an imminent Greek default, but how well it will work remains to be seen. Some in the financial sector have complained about the prospect of having to sell bonds at fire-sale prices.

The Market Monitoring Group of the Institute of International Finance, a global association of banks and other financial institutions, said last week that it was “critical that any buyback be conducted on a purely voluntary basis.” But Yannis Stournaras, the Greek finance minister, warned Greek banks holding many of the bonds that participation was a “patriotic duty.”

But unless Greece reduces its debt, the I.M.F. could still refuse to approve aid. That would probably mean another flurry of emergency meetings to draw up yet another plan.

In a sign that at least some investors are eager to sell back their Greek bonds, if the price is right, some big hedge funds have been accumulating the bonds on the open market.

Those funds, including Third Point and Brevan Howard, are betting that to make the buyback succeed — so Athens can get its next loan installment — the Greek government will have to meet their price demands. On the open market, the bonds in question are trading at about 30 cents on the euro — in other words, about 30 percent of their face value. The most aggressive hedge funds are insisting that they will not sell for less than 35 cents on the euro.

That raises a risk that investors will push the price up to a point at which it does not make economic sense for Greece to complete the buyback.

“There is a limited amount of money to do this,” Mr. Stournaras said in an interview Saturday. “But in the end, I do think it will be successful.”

To seal the debt overhaul deal last week, after three late-night, marathon meetings in three weeks, Christine Lagarde, managing director of the I.M.F., had to fight to persuade reluctant finance ministers like Wolfgang Schäuble of Germany. She argued that Greece was sinking so far that without immediate relief, it might never repay its loans.

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