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14 October 2012

Reuters: Eurozone mulls new ways to cut Greek debt mountain


Eurozone officials are considering new ways to reduce Greece's huge debts because delays to reforms by Athens and continued recession have put the target of a debt to GDP ratio of 120 per cent in 2020 out of reach.

A Greek debt sustainability analysis prepared by the International Monetary Fund, the European Central Bank and the European Commission in March forecast that Greek debt would rise to 164 per cent of GDP in 2013 from around 160 per cent in 2012, under a baseline scenario assuming the Greek economy would stop contracting next year.

But Greece now expects its economy to shrink by 3.8 per cent in 2013, its sixth consecutive year of contraction, boosting its debt ratio to 179.3 per cent.

"At the moment it looks like Greece's debt level will rise to well above the target of 120 per cent of GDP by 2020", ECB Executive Board member Jörg Asmussen said. “To bring it back towards the desired level in 2020, Greece could organise voluntary buy-backs of its bonds.”

The country is currently locked in talks with its lenders on a further set of cuts and reforms in order to obtain a new loan tranche. A deal should be reached by the time EU leaders meet on October 18-19, Greek Prime Minister Antonis Samaras said. Money for buy-backs could not come from the ECB, but it could be lent by the European Stability Mechanism, for example.

Greek government spokesman Simos Kedikoglou said several options were on the table. "The ECB, which holds Greek government bonds, could satisfy itself with lower interest rates on those bonds", he said. "Or, it could agree to roll them over when these bonds mature. Also, the recapitalisation of Greek banks could take place directly through the ESM as is currently being considered for Spain."

Another ECB Executive Board member, Benoît Cœuré, said the central bank would not consider rescheduling the Greek debt portfolio it held -- a suggestion repeatedly made by Athens. A eurozone official said Athens could use proceeds from the privatisation of state-owned assets to retire debt.

"The privatisation process is finally kicking in, the structure is ready", the official said. "You could expect a few billion euros from privatisation to buy back debt. This could happen relatively quickly." The IMF is pushing for eurozone governments to restructure the debt that Athens owes to them -- almost €53 billion lent under Greece's first bailout programme and €14.4 billion already disbursed under a second bailout.

Full article



© Reuters


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