Greek accord could involve big haircut

A deal to cut Greece’s private sector debt is to be submitted to parliament by Feb. 13, and involves a reduction of “more than 70 percent,” Finance Minister Evangelos Venizelos said late Tuesday.

Until now, private creditors have agreed only to cut the value of their holdings by a face value of 50 percent, with further losses expected once details of a bond replacement scheme have been hammered out.

Venizelos reiterated before a parliamentary commission that Greece was “a step” away from finalizing an agreement that would pave the way for other talks with European Union partners and the International Monetary Fund (IMF).

Issuance of new bonds

He urged Greek lawmakers to approve conditions for issuing new bonds that would replace about half of the 200 billion euros ($260 billion) that Athens owes to banks, insurance companies and other institutional investors.

The Greek minister said an agreement would lead to “a decrease in the nominal value (of the debt) of 50 percent, and a cut in the real value of banks’ shares of more than 70 percent.”

Because the interest rate on new bonds would be lower than those to be cancelled, private creditors would in fact book losses beyond the cut in the face value of the debt they own.

Crucial deadline

Greece and EU partners have set a Feb. 13 deadline to issue new bonds, as Athens must reimburse 14.5 billion euros worth of debt on March 20.

The country is trying to reduce the value of its overall debt, currently around 350 billion euros, to about 120 percent of its gross domestic product.

The figure stands at around 160 percent of GDP at present.