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Greece launches bond buyback

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ATHENS, Dec 3 AFP

December 04 2012, 03:43AM

Greece has launched an operation to buy back privately held debt at a big discount, a vital part of its repackaged rescue plan aimed at slashing the country's heavy debt load.

After the operation got under way on Monday, eurozone ministers were to meet in Brussels to review details of the plan and discuss help for Cyprus as well as EU-wide banking supervision.

Greece's national debt agency, PDMA, said it would offer to buy back sovereign debt from private investors on a voluntary basis.

The operation is a condition for Greece to receive a crucial instalment of bailout funds from the European Union (EU) and International Monetary Fund (IMF), and its results should be known before eurozone ministers meet again on December 13 to clear payments Athens needs to avoid bankruptcy.

The buyback concerns Greek sovereign bonds with a face value of 62.3 billion euros ($A78 billion) held by private creditors, with participants to receive between 32 and 40 per cent of the bond's face value in the form of six-month bills issued by the EU's temporary rescue fund, the EFSF.

Analysts estimate the buyback could eliminate 20 billion euros of the country's debt, but there are some concerns investors may not participate in large numbers.

Greece's private creditors had already agreed to write off about 107 billion euros' worth of Greek sovereign bonds in March.

The buyback is one of the key efforts to cut Greek debt approved by the EU and IMF when they agreed in principle last week to release 43.7 billion euros, much of which had been held up since June.

Creditors hope Greece's debt can be brought back to 124 per cent of gross domestic product (GDP) by 2020, from an expected 190 per cent next year.

The IMF has indicated that it wants to wait until a successful buyback takes place before releasing its portion of the rescue loans.

Meanwhile, Greece's economic prospects remain grim.

In an interim report on monetary policy, the Bank of Greece said on Monday the unemployment rate could exceed 26 per cent in 2013 and 2014, a "historically unprecedented level during peacetime".

This is far above the government's forecasts, which according to the budget approved by parliament last month are 22.8 per cent next year and 21.4 per cent in 2014.

EU Commissioner for Economic and Monetary Affairs Olli Rehn voiced confidence on Friday that eurozone ministers would approve giving Greece its funds.

At their Brussels meeting, finance ministers from the 17 countries that share the euro will also review a draft agreement on about 17 billion euros in aid for Cyprus drawn from funds provided by the EU and the IMF.

The aid is not expected to take the form of concrete loans until sometime next year, however.

Preparations for Spain to recapitalise its banks using eurozone loans will also be checked, with disbursement expected fairly quickly.

On Tuesday, when the eurozone ministers are joined by peers from the other 10 EU members, they are set to talk about policing the banking sector more effectively, but only gradually from September next year.

Proposed new safeguards are part of wider moves towards fuller economic and political integration deemed necessary to break the vicious circle between government and bank debt that has brought the European economy to a standstill.

But draft frameworks for the new regime have met with opposition particularly from the non-euro global financial centre of the City of London.

Ideas to be considered include those on how to get round problems where decisions taken by the European Central Bank run up against opposition in non-euro jurisdictions.

A key subject of discussion involves voting rights in cases where disputes arise between the ECB, which is to oversee the new system, and national watchdogs from non-euro countries that could find their regulatory powers eroded.

By Helene Colliopoulou