March 2, 2021

European Banks Are Hard-Selling Greek Bailout Plan

But in the case of the proposed second bailout for Greece — the one that is supposed to make private investors feel the financial pain along with taxpayers — the biggest banks in Europe are on the road now promoting the plan.

It’s not that the banks are suddenly masochists. It’s that this first major bond restructuring in Europe’s long-festering debt crisis is shaping up as a much better deal for the banks than for the Greeks it is supposed to be helping.

Holders of the Greek bonds would get much better value than they could in the open market, while Greece would still owe a lot of money. What’s more, Greece would be surrendering a lot of its negotiating clout if, in the future, it needed to go back to the bailout bargaining table.

This week, bankers representing the Greek government — Deutsche Bank, BNP Paribas and HSBC — have been explaining to investors why it is in their interest to trade in their decimated Greek bonds, take a 21 percent loss and accept a new package of longer-dated securities with AAA backing. Those bondholders include big European banks, smaller fund managers and insurance companies.

The bond exchange is a crucial component of the more than 200 billion euro ($286 billion) in rescue packages that Europe and the International Monetary Fund have put together to support the near-bankrupt Greek economy through 2014. The German chancellor, Angela Merkel, and others insisted that banks make such a contribution to give them some political cover at home.

The part of the rescue announced in July is subject to the approval of Germany and the governments of the 16 other member nations of the euro union in coming weeks. If investors balk at the 21 percent write-down that is the price for getting a deal done, the whole package could collapse. European governments would be hard-pressed to come up with those extra funds themselves.

But with the price of Greek debt trading in some cases at 50 cents on the dollar — even lower than when the bailout deal was announced in July — the 21 percent haircut seems to be quite a bargain.

As a bonus, the new bonds would be governed by international law, rather than Greek law. That is a significant alteration of lending terms that would strengthen the negotiating hand of the bondholders if Greece eventually concluded it had no alternative but to default — even after this latest bailout.

The International Institute for Finance, the advocacy group for global banks that is also the chief architect of the deal, says that 60 to 70 percent of the financial institutions holding Greek bonds have agreed to the swap so far. That comes close to the 90 percent threshold that the Greek government has stipulated, although it is too early to predict the final outcome because Greece will not formally make the swap offer until October.

“This is an attractive offer,” said Hung Tran, a senior executive at the institute. “We are making the case that if this deal is implemented it will restore stability to Greece.”

The question remains, however, whether the banks that financed the country’s debt by buying its bonds would get off too easy — and whether the Greek government should have pushed for a larger write-down to ease its debt load.

Analysts also note Greece’s diminished bargaining power in any future debt negotiations with its bankers.

In past debt negotiations involving countries like Argentina, Uruguay and Russia, the bulk of the debt was governed by either United States or British law. That gave the biggest bondholders the upper hand in negotiating terms; they could either hold out for a better deal or challenge the governments in foreign courts.

In the case of Greece’s debt, more than 90 percent of it was issued and is governed under Greek law, as a holdover of the era preceding Greece’s entry into the European monetary union in 2001. That, legal experts say, currently gives the Athens government the flexibility, if it so chooses, to alter bond contracts and secure a more beneficial restructuring deal over the objections of its foreign creditors.

Article source: http://feeds.nytimes.com/click.phdo?i=541e4a62077588bda472ee0befa3a4df

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