Closer to an Athens deal
Converging information from Athens, Brussels and Davos indicates that the agreement between the Greek government and its creditors is almost concluded.
Charles Dallara, the head of the International Institute of Finance representing the banks, is expected to meet Prime Minister Loukas Papademos late on 27 January to seal the deal on Private Sector Involvement (PSI) in alleviating the country's debt, but it is not clear if there will be an announcement made immediately afterwards.
In Athens, sources close to the negotiating teams say that the deal has as its central point an average interest rate of 3.7% on the new debt – the idea is that the new bonds, which are to replace 50% of the nominal value of the debt paper currently held by banks, will bear an interest rate below this level and will be increasing after the country enters in a sustainable growth path, hopefully in the year 2014 or 2015.
In the same direction was a statement from Davos, by Deutsche Bank CEO Josef Ackermann, who evaluated the losses for the banks at 70% of the present value of their Greek debt portfolio. This estimate for private lenders makes sense if the new interest rate is going to be around 3.7% and the maturities of the new bonds are as long as 30 years, with a ten-year grace period.
If those terms are applied to the 50% of the nominal value of the Greek debt held by banks, then the present value method of evaluation of the new bonds reduces their value to 30% of today's nominal bonds held.
A relevant statement about the possibility of a quick conclusion to the deal came from Brussels – Finance Commissioner Ollie Rehn said on 26 January that an agreement was expected soon – but this does not mean that the debt-stricken country's woes are over.
The Athens government is now also negotiating with the EU-ECB-IMF troika, which has for two years been the only source of finance for the Greek government and the country's commercial banks.
At stake is the second package of soft EU loans to Greece with a value of €130 billion, and the austerity programme to accompany it.
Over the past two years, the country has lost more than 10% of its national income and product (GNI/GNP), in what has been the worst recession following World War II, in applying the troika’s policy recommendations and, unfortunately the troika seems to be insisting on more of the same.
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