BRUSSELS – Greece wants a solution to its crippling debt that applies to all its sovereign bonds expiring up to 2035, a government source said on Monday, adding that the process should remain voluntary and any deal must include the European Central Bank.
This would be a marked expansion from a previous, now defunct, plan agreed by the EU in July, under which Greece’s debt burden would be lowered through a bond exchange involving paper maturing up to 2020.
“We are looking at the entire Greek debt, expiring through to 2035… It does not stop at 2020 as the previous model did,” the source said in Brussels, where frantic negotiations are underway between Greece and its lenders to arrive at a deal before an EU summit on Wednesday.
Leaders of the 17 nations sharing the euro are trying to meet a self-imposed Wednesday deadline to agree on the terms of a second rescue package for Greece, including a deeper write-down in the value of privately held bonds that the source said amounted to about 200 billion euros.
A leaked report on Greece’s debt by international inspectors suggests the 109 billion euro rescue package agreed in July is no longer sufficient unless private sector bond holders accept a 60 percent write-down on the debt they hold.
Without such a reduction, Greece would need more than 250 billion euros to be solvent, economists say.
The source reiterated that Athens was ruling out any coercion on bondholders, which is also opposed by the European Central Bank.
“ECB agreement is a condition… nothing can be done without the ECB… we oppose any unilateral move that could be interpreted as a reconstruction of debt,” the source said in Brussels.
But this statement comes in the face of warnings by the banks that any deal forcing them to take bigger losses “would be tantamount to default,” according to their lead negotiator.
“There are limits… to what could be considered as voluntary to the investor base and to broader market participants,” said Charles Dallara, managing director of the Institute of International Finance (IIF).
Greek banks, which hold about 40 billion euros of toxic Greek government debt, will have to increase their capital but they will not be nationalised, the source said.
“There will be a coercive phase of share capital increases,” the source said.
Greece’s bank stock index plunged 17 percent on Monday, on fears that a haircut of more than 50 percent on Greek debt would wipe out their capital and lead to wholesale nationalisation.
But any state bailout for the banks through the Hellenic Financial Stability Fund, a 10-billion euro facility set up under the country’s first EU/IMF rescue last year, would be temporary and not amount to nationalisation, the source said.