Greece would be allowed to impose losses on its public investors the same way it did to private investors in a desperate bid to write down debt, officials from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) has proposed, according to the German news magazine Der Spiegel.
Under a previous government, Greece earlier hit bondholders with 74 percent losses, nearly wiping out Cyprus’ banks and requiring the government there to seek a bailout as well. That effectively locked the country out of private markets, leaving it dependent on aid from the Troika.
The Frankfurt-based ECB, which owns 40 billion euros ($51.5 billion) of Greek government bonds, isn’t allowed to take part in the restructuring. Instead, the central bank would “make available” any profit it makes on the bonds, Spiegel said.
The Troika, according to the report, is willing to accept a so-called “haircut” because Greece’s economy is still floundering despite $325 billion in two bailouts, the Private Sector Involvement (PSI) debt write-down of $134 billion, and more than 2 ½ years of austerity measures that have worsened the country’s five-year recession, putting nearly two million people out of work, closing 68,000 businesses, and shrinking the economy by 7 percent.
Der Spiegel said Troika envoys presented the plan on Oct. 25 at a meeting of high-level officials from finance ministries of the Eurozone of 17 countries that use the euro. This would be the first time euro aid would cost taxpayers “serious money,” Spiegel said. Public creditors to Greece would be expected to participate and to relinquish a large part of their claims, it said.
Greek Prime Minister Antonis Samaras is trying to convince his reluctant coalition partners to go along with harsh labor law changes in a pending $17.45 billion spending cut and tax hike plan so that the Troika will release a delayed $38.8 billion loan installment.
He is awaiting a report from Troika inspectors, which is due by Nov.12. He said unless Greece gets the loan that it could be unable to pay workers and pensioners after Nov. 16. Greece has only completed about 60 percent of the required changes, the Troika’s presentation showed, according to Spiegel. The Greek government is discussing 20 percent of the revamp, and the remaining 20 percent hasn’t been addressed.
The Troika recommended measures to force Greece to fulfill promises, including a provision to automatically raise taxes if reforms aren’t completed. Greece will be given two more years to get its budget on track, Spiegel reported.
Representatives from some countries, including Germany, the biggest contributor to the bailouts, opposed the proposal, Spiegel said. German Finance Minister Wolfgang Schaeuble, in a radio interview with Deutschlandfunk broadcast, rejected another debt restructuring and said it’s unrealistic to expect public or private bondholders to take losses on their Greek holdings.
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