Governments and central banks would have to make concessions if Greece needs another round of debt restructuring, according to Hans Humes, president of New York-based hedge fund Greylock Capital Management.
“If there need to be concessions on debt, it’s going to have to come from somewhere else,” Humes, who is a member of a committee of private bondholders that negotiated the swap with government officials earlier this year, said today at the Bloomberg Sovereign Debt Conference, hosted by Bloomberg Link in Frankfurt. “We are going to have to look to the official sector and the central banks to make concessions.”
Private creditors have “stronger bargaining power” after reaching an agreement in February with Greece and European officials on the biggest sovereign debt restructuring in history, Humes said. Investors including banks, insurers and hedge funds agreed to forgive more than 100 billion euros ($132 billion) of debt, opening the way for a second bailout.
Euro-area central banks and the Luxembourg-based European Investment Bank negotiated a deal to sidestep losses on Greek bond holdings, said euro-region officials with with knowledge of both transactions. The European Central Bank swapped its Greek bonds, bought as investments under the Securities Markets Program, for bonds of identical structure and nominal value that are exempt from so-called collective action clauses.
ECB President Mario Draghi said March 8 the swap was the “right thing to do,” adding “the ECB has in a sense the duty to do everything to protect the taxpayers’ money that was entrusted to it.”
Greece remains “accident prone” and may require further debt restructuring or additional financing from euro countries if it struggles to implement measures attached to a new 130 billion-euro bailout, staff at the International Monetary Fund said in a report last week. With the debt swap and austerity measures, the Greek government plans to cut the country’s debt burden to 120 percent of gross domestic product by 2020 from as high as 170 percent.
“The private sector now has got such a small piece to play in this that the attention really has to focus on what is the official sector going to do going forward,” said William White, chairman of the Organization for Economic Cooperation and Development’s economic and development review committee, who estimates the three-quarters of remaining Greek debt is held by the official sector. “That’s the real question as to what’s going to happen on the official side if the Greeks can’t meet the objectives.”
Reaching the 120 percent debt-to-GDP target is “very optimistic,” White said. Together with a 130 billion-euro second Greek aid package, the restructuring is a key element in European leaders’ efforts to turn the tide against the crisis that has roiled Europe, and forced Ireland and Portugal to follow Greece in requiring bailouts.