BRUSSELS/FRANKFURT Jan 31 Negotiations
between Athens and its private creditors on restructuring
Greece's debt could wrap up as early as Wednesday, bankers and
officials said, but European Central Bank action to further
reduce the burden is now seen as imperative and is proving a
Banking sources and officials in Athens and Brussels said
the private sector talks were on the cusp of being concluded,
with banks and insurance companies ready to accept around a 70
percent net-present-value loss on the bonds they hold, reducing
Greece's debts by around 100 billion euros.
Greek Finance Minister Evangelos Venizelos said the loss
could even exceed 70 percent.
Despite that scale of writedown, however, officials said it
was unlikely to be sufficient to reduce Greece's debts to 120
percent of GDP by 2020, the goal agreed with the International
Monetary Fund to make the debt pile sustainable.
Instead, there is a growing awareness of the need to involve
public sector owners of Greek bonds - the European Central Bank
and national euro zone central banks - in the restructuring,
European officials and bankers said.
"The analysis is being done right now to see what steps the
official sector can take in reducing Greece's debts," one EU
official familiar with the talks told Reuters.
"The goal is to get the debt-to-GDP down to 120 percent, but
even with PSI it's still substantially above that, so there
needs to be official sector involvement."
A senior banking source with knowledge of the talks said
there was a common understanding that private sector involvement
would not work without the official sector taking a hit as well,
adding: "We're talking about the 'how' now."
ECB sources told Reuters last week that the ECB had paid 38
billion euros to buy Greek bonds with a face value of 50 billion
euros over the past year or more as part of its controversial
bond-buying programme to prop up Athens.
That leaves the central bank sitting on a nominal gain of 12
billion euros that could be released back to Athens to help
reduce its debt-to-GDP ratio without losses being incurred.
But the EU official said that would still not be enough to
close the gap left between the debt relief the private sector is
ready to provide and the 120 percent debt-to-GDP target - a gap
estimated at nearly 10 percentage points.
HIT FOR NATIONAL C.BANKS
As a result, it may be necessary for the ECB or national
euro zone central banks to take losses on their holdings, or to
forego interest payments. Some national central bank balance
sheets couldn't handle such losses, the sources said.
"This complicates the discussions," the banker familiar with
the talks said of the possibility of national central banks
potentially taking losses.
Another source said it might be necessary for one or more of
the euro zone's national central banks to raise extra capital to
offset the possibility of losses.
At the end of last year, the Dutch central bank cancelled
its interim dividend and said it would make a loss in 2011 due
to the ECB's bond-buying programme, although the loss was not
explicitly linked to the buying of Greek bonds.
The Dutch central bank was not immediately available to
comment. A spokesman for the Dutch finance ministry declined to
Even if the private sector's role in reducing Greece's debts
is concluded on Wednesday - following nearly seven months of
on-and-off talks - it could still take several days before there
is any resolution to the official sector participation.
Time is running short. A deal on restructuring Greece's debt
is needed by mid-February if Athens is to avoid missing a 14.5
billion euro debt repayment in mid-March, which will force a