* Greece could buy back bonds with ESM money, use
* Bank recapitalisation loans to Greece could be converted
By Jan Strupczewski
TOKYO, Oct 13 Euro zone officials are
considering new ways to reduce Greece's huge debt because delays
in reforms by Athens and continued recession have put the target
of 120 percent debt to GDP ratio in 2020 out of reach, euro zone
A Greek debt sustainability analysis prepared by the
International Monetary Fund, the European Central Bank and the
European Commission in March forecast Greek debt would rise to
164 percent of GDP in 2013 from around 160 percent in 2012 under
a baseline scenario, assuming the Greek economy stopped
contracting next year.
But Greece now expects its economy to shrink for the sixth
year running in 2013, eyeing a 3.8 percent contraction that
would boost its debt ratio to 179.3 percent.
"At the moment it looks like Greece's debt level will rise
to well above the target of 120 percent of GDP by 2020," ECB
Executive Board member Joerg Asmussen told the Sueddeutsche
To bring it back towards the desired level in 2020, Greece
could organise voluntary buy-backs of its bonds, he said.
"One has to consider elements that could make it possible to
achieve that goal. One possibility would be buying back debt,"
The money could not come from the ECB, but it could be lent
by the European Stability Mechanism, for example, one senior
euro zone official, who was in Tokyo for the weekend meetings of
the International Monetary Fund and World Bank, said.
Because Greek bonds trade at very deep discounts, one euro
of money borrowed from the ESM, the euro zone's permanent
bailout fund, could reduce Greek debt by 1.5 euros, offering
good leverage, the official said.
Another ECB Executive Board member, Benoit Coeure, said the
central bank would not consider rescheduling the Greek debt
portfolio it held -- a suggestion repeatedly made by Athens.
A second euro zone official said that while borrowing from
the ESM would in itself increase Greek debt, there was another
way to reduce it.
"What could change the overall level of debt is that, at
some later stage, when banks can be directly recapitalised by
the ESM, we could convert some of the euro zone loans for bank
recapitalisation into equity and this could help the debt ratio,
but this is not going to happen before the end of next year,"
the second official said.
The euro zone's temporary bailout fund, the European
Financial Stability Facility, has already lent Greece 25 billion
euros to recapitalise banks, and 23 billion more is awaiting
The 48 billion euros would be a sizeable chunk of Greece's
total debt, currently estimated at around 330 billion euros.
Athens could also use proceeds from the privatisation of
state-owned assets to retire debt, the second official said.
"Another way could be to use privatisation receipts to buy
back debt," the official said. "The privatisation process is
finally kicking in, the structure is ready. You could expect a
few billion euros from privatisation to buy back debt. This
could happen relatively quickly."
The debt sustainability analysis from March estimated Greek
privatisation revenues by 2020 at 45 billion euros, with 12
billion coming in 2012-2014.
The IMF is pushing for euro zone governments to restructure
the debt that Athens owes to them -- almost 53 billion euros
lent under Greece's first bailout programme and 14.4 billion
already disbursed under a second bailout.
The euro zone could also further lower interest on the loans
for the first programme, which now stands at 150 basis points,
or lengthen the loan maturities or increase the moratorium time
when interest does not have to be serviced.
But officials said there was very little appetite among euro
zone countries for a restructuring of official sector loans to
To help Greece return to growth, the euro zone and the IMF
are discussing giving Athens an extra two years to reach a
primary surplus of 4.5 percent of GDP, pushing back the date to
Greece has said two extra years in financing would cost 13
billion to 15 billion euros and officials said the euro zone
realises it will need to come up with the money.
But no decision on the financing has been reached yet.