July 2, 2020

Greece Agrees to Borrow to Pay for Debt Buyback

The finance minister, Yannis Stournaras, said the strategy of buying back debt from bondholders at a discount needed to succeed as a matter of “patriotic duty.”

Mr. Stournaras did not say outright that the buyback was a firm requirement for the release of 34.4 billion euros, or $44.5 billion, in bailout money next month, though the International Monetary Fund, one of Greece’s troika of creditors, signaled as much this week. The Greek debt management agency is to disclose details of the buyback next week.

Mr. Stournaras said that if the program failed to attract sufficient interest from the banks and insurers that hold the government’s debt, officials had drawn up a “Plan B.” He refused to elaborate.

The loans needed to carry out the buyback would come on top of the money that European officials and the I.M.F. committed to release after marathon talks in Brussels this week.

The troika has calculated that if successful, the debt buyback, together with other means of debt relief, could help Greece reduce its debt to 124 percent of gross domestic product in 2020 and even further after that, from about 175 percent now.

But a number of hurdles remain that could mean delays in reducing Greece’s debt. For one, Athens will also have to persuade bondholders to sell back their debt at a price that is attractive to the government. Bondholders will hold out for as much as they can get.

In addition, some of those bondholders are beleaguered Greek banks. The government bonds they hold count as bank capital and pay a high rate of interest, reflecting the risk attached to the debt. Writing down the value of the bonds, and forgoing that capital and income, will eventually leave the banks even worse off than they are now. That may require the troika to send even more aid to Greece in the future to recapitalize the banks, analysts say.

As it is, nearly 85 percent of the coming installment of bailout aid has been set aside to shore up Greek banks, which have virtually stopped lending.

Since Greece appealed for foreign support to avoid default in April 2010, the troika — the European Commission, the European Central Bank and the I.M.F. — have committed to two loan programs worth 240 billion euros. In exchange, three increasingly weak governments in Athens have imposed a raft of austerity measures that have crippled Greek households.

European and I.M.F. officials on Tuesday agreed to release about 44 billion euros in aid. Of that, 34.4 billion euros is to be disbursed by Dec. 13. The remaining 9.3 billion euros is to be released in the first quarter of next year on the condition that Greece meets the troika’s targets for adopting austerity measures and fiscal and economic reforms.

Mr. Stournaras said the agreement in Brussels “creates the conditions to keep us in the euro zone and the opportunity to emerge from the vicious cycle of recession and indebtedness.” But he said there was no cause for celebration. “Now the hard part begins,” he said.

Niki Kitsantonis reported from Athens and Liz Alderman from Paris.

Article source: http://www.nytimes.com/2012/11/29/business/global/greece-struggles-again-to-come-up-with-funds.html?partner=rss&emc=rss