EU aims for quick Greek debt swap end of August

Reuters, Saturday 23 Jul 2011

A debt swap of privately held Greek bonds might be conducted in the coming weeks to minimize the period in which Greece is in partial default

Euro zone officials and bankers plan to conduct a voluntary swap of privately-held Greek bonds for longer maturities within a few weeks to minimize the period during which Greece is in partial default, a senior EU official said.

The official, speaking on condition of anonymity, said talks were continuing aimed at starting the bond exchange in late August and concluding it in early September.

"This operation is designed so it is likely to be at a point of time in the last days of August and first days of September when it will be done at the same all over Europe," he said.

"That is the moment when there will be a selective default or a restricted default, according to the ratings agencies. It can be quite short," he said.

Greece's private sector creditors will take a 21 per cent loss on their bond holdings as part of a 37 billion euro contribution over the next three years to a rescue plan for the debt-stricken country agreed at a euro zone summit on Thursday.

The money will come from a variety of debt swaps, plus a buyback of Greek debt on the secondary market and a rollover of maturing Greek bonds into 30-year instruments.

The official said the euro zone's financial rescue funds would not yet have gained new powers to intervene on secondary bond markets, give states precautionary credit lines and lend money to recapitalize banks at that point, because that will require parliamentary approval in member states.

But commitments made by the other euro zone member states, notably Germany and France, to guarantee Greek bonds during that period or present collateral to the European Central Bank will enable Greek banks to continue to receive ECB liquidity in refinancing operations during that period.

There were no plans for euro zone finance ministers to meet again until mid-September after Thursday's deal on a second Greek bailout and a widening of the euro zone rescue fund's scope, the official said.

Work was continuing between a euro zone working group, the Greek government and the International Institute of Finance (IIF), the group representing 400 banks and financial institutions, on the details of the bond swap but it was unlikely to require further action by ministers, he said.

If necessary, euro zone finance ministers would confer by teleconference sometime in August, the official added.

The IIF has estimated a take-up rate of about 90 percent for the voluntary program, which also gives banks the option of rolling over maturing debt into bonds of up to 30-year maturity

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