Greek Banks Ready for Rollover as Investors Discuss New Aid

Greek Finance Minister Evangelos Venizelos
Greek Finance Minister Evangelos Venizelos attends a news conference in Athens, June 23, 2011. Photographer: Petros Giannakouris/AP

Greek banks are willing to roll over their government bonds as part of a European Union aid plan, Finance Minister Evangelos Venizelos said, as debt-holders meet in Paris today to discuss their role in rescuing the country.

“The Greek banks are ready to participate,” Venizelos said yesterday in an interview with Bloomberg Television in Athens. “We must respect absolutely the voluntary character of this procedure. This is very sensitive and I give a very crystal clear answer on this topic.”

EU leaders are insisting private investors contribute to a new aid package for Greece after last year’s 110 billion-euro ($159 billion) rescue failed to stop the spread of Europe’s debt crisis. Participation by Greek banks and pensions funds is key to the success of a plan for investors to roll over as much as 30 billion euros of maturing bonds into longer-term securities.

About 20 banks and insurance companies are meeting in Paris to discuss the role of bondholders in a new Greek aid plan, said the Institute of International Finance, a banking-lobby group hosting the gathering. Talks began last week in Rome under the auspices of IIF Managing Director Charles Dallara, a former U.S. Treasury official.

The next rescue package for Greece is more likely to succeed if it includes a plan to retire outstanding debt through organized buybacks, Dallara said yesterday. A buyback fund of about 50 billion euros could reduce Greece’s outstanding debt as a proportion of gross domestic product by as much as 20 percent, he said by phone.

Collateral Question

Creditors and EU officials are looking for a way to structure the plan in such a way as to avoid a default rating that could prompt the European Central Bank to refuse to accept Greek bonds as collateral. Standard & Poor’s said on July 4 that it would likely cut Greece to selective default if the rollover being discussed went ahead.

Greece must avoid having rating companies cut the country to “selective default,” Venizelos said yesterday, hours before Portugal’s credit rating was cut to below investment grade by Moody’s Investors Service on concern the country will follow Greece in seeking a second international bailout.

“We must take the opportunity but not the risk,” Venizelos said. “It is very, very important to organize something safe because the Greek problem is always a European problem, a worldwide problem and financial stability in Greece is a key point for financial stability in the euro zone.”

Role of Ratings

German Chancellor Angela Merkel said that too much weight shouldn’t be placed on the ratings companies alone, and that the so-called troika of the International Monetary Fund, the ECB and the European Commission “don’t surrender our ability to make judgments.” She spoke yesterday to reporters in Berlin.

Under a French-designed plan used as a basis for talks with investors, creditors would roll over 70 percent of bonds maturing by mid 2014 into new 30-year Greek securities backed by AAA-rated collateral. Under a second option, banks and insurers could roll over into new five-year bonds with no guarantee.

A meeting of euro-area finance ministers on July 11 will be an opportunity for a “deeper discussion” of the rollover plan, Venizelos said. That’s the same day Venizelos is due to appoint the board members of an agency overseeing Greece’s 50 billion-euro state-asset sales program, which is key to the country’s second financing package.

EU-IMF Loans

Discussions on loans from the EU and the International Monetary Fund, the third part of the new aid package for the country, can only begin after details of private-sector involvement are thrashed out, he said.

Delays in completing the new rescue plan have been weighing on Greek banks. Deposits at the nation’s lenders fell by the most in more than a year in May as speculation about a possible default and the deepening recession fueled withdrawals. Deposits fell 2.5 percent from the previous month to 191.9 billion, the Bank of Greece said yesterday.

Venizelos dismissed criticism of the privatization plan as unrealistic, saying he’s targeting 1.7 billion euros in revenue from state-asset sales by the end of September. Under the new aid plan, Greece should be ready to return to tap markets for financing in the second half of 2014.

“I can respect the timetable,” he said, referring to his stint as the minister in charge of preparations for the Athens Olympics in 2004. “I can make delivery on time.”

Greece will meet its goal of achieving a primary surplus next year and in following years, which is “the first condition for the reconstruction of our economy and for the return of Greece to the markets as soon as possible,” Venizelos said.

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