Plans to slash Greece's debts
Market watch top headlines
November 27 2012, 3:01PM
CONCRETE WAYS TO SLASH GREECE'S LONG-TERM DEBT BURDEN WITHOUT BEING SEEN TO OFFER A THIRD BAILOUT ARE FORMALLY ON THE TABLE.
With key elections looming in eurozone powerhouse Germany next year, German Finance Minister Wolfgang Schaeuble said his government will take the multi-billion euro package, announced early Tuesday after a meeting if European finance ministers, to parliament by the end of the week.
In the same way it gradually dawned on banks and other private lenders that substantial chunks of money lent to Greece during the good times would have to be written off, governments too appear ready to forego what was due.
To begin with, a window is being set up for Greece to attempt a "buy-back" of debt on commercial markets, and so see a portion of it evaporate.
After months of what the IMF termed "laborious" talks primarily seen as being about re-starting promised but stalled loans, this new model involves:
THE DEBT BUY-BACK
Greece will be able to buy back some of its debt, taking advantage of collapsed value to wipe away some of the paper figures due. This would be a technical means of annulling monies owed. The sale of short-term Treasury Bills could help manage these transfers of debt ownership back to the issuer.
A favoured option in Berlin, in the belief that markets will see sufficient improvement in Greece and in the European economy generally going forward.
Values are to be no higher than on Friday 23 November, and this is expected to be concluded before eurozone finance ministers meet on December 13, officially to greenlight the release of 43.7 billion euros ($A54.63 billion) in loans to Greece.
The European Central Bank and governments have acquired Greek debt at advantageous prices since the crisis first erupted, given the progressive collapse in its value on private markets that once feared "Grexit" - Greek exit from the euro currency.
Such profits are normally re-distributed around national-level central banks, but may now be re-routed back to Greece -- states deciding to forego their share of these profits.
LOWER INTEREST RATES, LONGER MATURITIES
Existing loans to Greece from eurozone partners -- except fellow bailout beneficiaries Ireland and Portugal while under aid conditions -- will see rates due to lenders trimmed by 100 basis points, or one per cent. Fees related to eurozone rescue fund loans will fall, with a deferral of interest for 10 years, while full repayment dates -- for rescue fund and bilateral loans from currency partners -- will be extended by an additional 15 years.
Reducing the cost of servicing Greek debt is the preferred route for the representatives of private sector financiers who negotiated the bank haircut.
NEW DEBT-TO-GDP RATIO TARGETS
The Eurogroup and the IMF wanted a 120-per cent debt-to-output ratio by 2020 in the bailout deal agreed in March.
This has been revised to 124 per cent by 2020, and "substantially below" 110 per cent by 2022.
A DEBT WRITE-DOWN, OR 'HAIRCUT'
The IMF ultimately backs a partial write-down of so-called "official sector" debt, similar to the "haircut" agreed by private sector lenders earlier this year.
All of this is about trying to prevent the country's debt-to-output ratio ballooning to an estimated 190 per cent of gross domestic product in 2014.
This, though, means crossing a red line for the ECB, as well as key eurozone states led by Germany, for whom fiscal transfers to other sovereign parts of the currency area are considered a vote-loser.
Other Triple A-rated states, though, have said they are "not excluding" this come 2015.