Athens: Greece’s new government is proposing creative solutions as it treads a delicate path between its obligations to international creditors and campaign promises to end austerity and reduce the country’s debt.
“If we need to use euphemisms and tools of financial mechanisms to get Greece out of its debt-slavery, we will do it,” Finance Minister Yanis Varoufakis said yesterday.
He insisted the new government, led by the anti-austerity Syriza party, “will not back down” in its efforts to lighten Greece’s $359bn debt burden, equivalent to 175 percent of gross domestic product.
According to an interview with the Financial Times published yesterday, Varoufakis proposes to replace €25bn in Greek bonds owned by the European Central Bank (ECB) with “perpetual bonds”, which have no set maturity or expiration date.
The advantage for Greece is that it will continue paying interest on the bonds, but will no longer have a repayment deadline hanging over it like a sword of Damocles. Under the current system, Greece is due to pay back €7bn to the ECB this summer.
Under the scheme, the central bank in Frankfurt would neither suffer losses on its Greek debt, nor have to declare Athens in default — avoiding dramatic market turbulence that would erupt if Greece were unable to honour matured bonds. “A perpetual bond, which is never paid back, may be a little hard to accept. I imagine something closer to a compromise on a very long-term maturity, say, lasting 50 years,” Frederik Ducrozet, an analyst at Credit Agricole, said. He called the proposal to delay Greek repayments for decades a “very good idea”. Varoufakis also suggested in the FT that rescue loans issued by the European Union be exchanged for bonds “indexed to nominal economic growth”. Repayment of those would then be linked to the performance of the Greek economy.
The European Financial Stability Facility (EFSF), the European bailout fund, holds around €140bn of Greek debt.
“It’s a financial innovation, but we’re not in entirely unchartered territory,” said Ducrozet, noting that securities of that kind were issued to ease the losses of private banks when Greek debt was restructured in 2012. Argentina, another country that has been plagued by debt problems, has benefited from something similar.
“The proposals made by Varoufakis form the basis of an entirely plausible negotiation,” said Ducrozet — an opinion shared by many investors.
The Athens stock market soared by more than 11 percent yesterday, and the rate of return on 10-year Greek bonds, a barometer of confidence, fell.
The Greek newspaper Kathimerini also reported that Greece wants to issue an increased number of short-term government bonds to cover the state’s immediate funding needs.
Unable to access long-term lending markets because of prohibitive rates, Athens has been issuing bonds that mature after a few months. They are often bought by Greek banks.
Greece has reached its annual limit of 15 billion euros in short-term bonds, also known as treasury bills or t-bills, but reportedly wants to increase that to €25bn.
Varoufakis will also be asking for the profits made by eurozone central banks from holding Greek debts — about €1.9bn — to be transferred to Greece by the end of February, Kathimerini reported.
This money was due to be included in the next tranche of international loans, worth €7bn. Athens says it does not want this, preferring to renegotiate the entire bailout programme.
To access these funds, and to raise the limit on its short-term bonds, Greece must first seek approval from the finance ministers in the eurozone, the so-called Eurogroup.
According to a diplomatic source, plans are being made for an extraordinary meeting of the group in the coming days.AFP
LONDON: European shares rose to near a seven-year high yesterday, and Greek banking stocks soared, on hopes a standoff over the country’s debt would be resolved after its new government softened calls for a writedown.
Athens proposed ending a standoff with its creditors by swapping the debt for growth-linked bonds. The reported proposals contrast with the government’s strident vows last week to ditch the tough austerity conditions.
Athens’ benchmark index ATG jumped 10.9 percent, with the country’s banking index surging more than 18.7 percent. National Bank of Greece, Alpha Bank and Eurobank rose by 14.0 to 20.8 percent. “Greek banks have massive potential to recover because if you get a debt deal and Greek banks get some help, then they can reinforce their balance sheets and carry on trading,” Edmund Shing, global equity fund manager at BCS Asset Management, said.
Greek Finance Minister Yanis Varoufakis, in London on Monday to reassure private investors that he was not seeking a showdown with Brussels over a new debt agreement, said the new left-wing government would spare privately held bonds from losses, a source said. However, German Chancellor Angela Merkel said Greece was still working out plans on tackling its debt and declined to comment on an apparent softening of Athens’ stance on a debt writedown and proposals for a new debt swap.
Shares in other southern European markets also outperformed, with Spain’s IBEX up 2.4 percent and Italy’s FTSE MIB up 2.1 percent. The FTSEurofirst 300 rose 0.8 percent to 1,479.23 points by 1435 GMT, not far from a seven-year high of 1,490.02 set in late January, while Germany’s DAX was up 0.8 pct after hitting a new record high. “The market is currently hoping that Greek negotiations of (its) bailout terms will run quite smoothly. There are some signs that there might be a compromise in the making and there will not be any kind of default,” Gerhard Schwarz, head of equity strategy at Baader Bank in Munich, said.
Commodity stocks also rallied, supported by a sharp rise in metals and crude oil prices. The STOXX Europe 600 Oil and Gas index rose 3.1 percent, while the European basic resources index gained 3.2 percent.Reuters
