Greek Debt Is Focus of Another Euro Zone Finance Ministers Meeting

Euro zone finance ministers will gather here on Monday for their fourth meeting in four weeks. Last week they hashed out a plan by 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 changes demanded by its international creditors.

On Monday, 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 tranche of bailout money.

Even as the Greek economy continues to falter, the latest meeting of finance ministers comes against a backdrop of grim new data for the euro region as a whole. Despite an optimistic forecast on 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 indicates that things may get worse before they can 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 in Athens 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 pressure lenders, including Germany, to relieve some of its burden.

A centerpiece of those efforts, agreed upon last week, is the debt buyback. The plan is for authorities in Athens to borrow European funds to buy 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 being forced 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,” even as 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, the Greek government will have to meet their price demands. On the open market, the bonds in question are trading at around 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 any price below 35 cents on the euro.

That raises a risk that investors will push up the price 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 on 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 battle to persuade reluctant finance ministers like Wolfgang Schäuble of Germany. She argued that Greece was sinking so deeply that, without immediate relief, it might never repay its loans.

Mr. Schäuble declined to go along with a relief plan until a way was found to avoid the politically unpalatable step of forgiving Greece’s loans. Besides the debt buyback, the revamped plan included extending the payback dates for some of the debt held by other euro zone governments. Central banks in countries that use the euro also agreed to return to Greece any profits made on Greek bonds purchased by the European Central Bank.

On Friday, the German Parliament approved the new relief plan by a wide margin, a sign of continuing fears about the fate of the euro zone if Greece defaults. But the approval carried a political cost for the German chancellor, Angela Merkel, as nearly two dozen legislators in her own Christian Democrat party voted against the measure.

Landon Thomas Jr. contributed reporting from London, and Niki Kitsantonis from Athens.

Article source: http://www.nytimes.com/2012/12/03/business/global/03iht-ministers03.html?partner=rss&emc=rss