Greek deal accepted by 85.8% of creditors
Voluntary participation in the Private Sector Involvement (PSI) exercise to alleviate Greek debt reached 85.8%, according to an announcement by the Greek finance on Friday 9 March, after the deadline for the offer expired at 22:00 Greek time on 8 March.
Private holders of Greek bonds with the total value of €206 billion were requested to participate and accept a 'haircut' to their titles of 53.5%. In return, they are to receive 33.5% in new bonds guaranteed by the European Financial Stability Facility under the English law.
The holders of Greek debt of €152bn offered to participate in the PSI out of a total of €177bn of outstanding debt now under Greek law. This category of creditors also accepted, with a 95% majority, that the Collective Action Clauses should be activated. The relevant decision to this end will be formulated this afternoon by Eurogroup at 15:00 Greek time.
It should be remembered that the Greek debt to be swapped under this PSI offer is €206bn in total. Of this, titles worth €177bn have been issued under Greek law, while the rest is under English or Japanese law – the part of the debt under foreign law is also subject to PSI agreement. Holders of such bonds under foreign law of a value of €20bn accepted the PSI offer.
For this category of creditors, the Greek government has extended the PSI acceptance deadline to 23 March. If the CACs are activated, participation will reach 95.7%. According to the Greek finance ministry, holders of 5.3% of the overall debt refused the PSI swap.
International Institute of Finance (IIF) CEO Charles Dallara and its President Josef Ackermann, speaking on behalf of the organisation that has represented the creditors, both said that the conclusion of the PSI agreement was a major accomplishment and added that new opportunities are opening now for Greece but the country has to apply its economic restructuring programme.
European Central Bank (ECB) Governor Mario Draghi, speaking after the ECB’s governing council decided to keep unchanged the basic interest rate at 1%, said that all Eurozone governments in financial distress must now honour their promises to reduce fiscal deficits and increase competitiveness.
Draghi added that the ECB, by releasing liquidity of more than one €1 trillion over the past two months in favour of Eurozone's financial markets, had done its share and governments and banks should not expect the institution to repeat such measures in the future.
Independent commentators have said that this €1 trillion in cheap loans at 1% interest rate handed out by ECB during two Long Term Refinancing Operations (LTROs) in 22 December 2011 and in 29 February 2012 may now ease the pressure on the Eurozone’s financial markets, but the risks undertaken by the central bank might prove to be unmanageable.
German central bank the Bundesbank, the largest constituent part of the ECB, has already expressed its reserve concerning the two LTROs – in view of this, the International Swaps and Derivatives Association Ltd (ISDA) is to hold a meeting on 9 March in its EMEA (Europe) Determination Committee to decide if the Greek deal constitutes a 'credit event'.
In case of a positive answer by ISDA's EMEA to this question, then those who have insured their portfolios of Greek bonds in the Credit Default Swaps (SDCs) market will be entitled to be fully reimbursed. According to information from Athens this might trigger payments of a total value of Greek bonds of 3.5 bn.
In relation to the results of the Greek deal, International Monetary Fund (IMF) Director-General Christine Lagarde said: “The danger of a real major crisis has been repelled for the time being, but European governments have a lot more to do.”
It should be remembered that the IMF is insisting on two criteria – first, that all the Eurozone governments and especially the ones in dire straits should apply severe austerity measures and produce fiscal surpluses on their government budgets.
Secondly, the IMF says that the ECB should be given a free hand in replenishing the Eurozone's financial market liquidity and participate with the Greek bonds it holds in the alleviation of the country's sovereign debt. On this second issue, Germany is strongly opposed.
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