The reprofiling (reform of the bond characteristics) has been adopted as a term at the Eurogroup meeting regarding the proposed arrangements of the Greek debt as part of a package that would also include two other features: the expansion of the medium-term program and the enhancing of the privatization program which will be collateral to the reprofiling.
The large investment banks appear positive towards this possibility in the discussions with holders of Greek debt (banks, insurance companies and pension funds) and recommend this very solution, ruling out any consideration of debt restructuring through a haircut of the nominal value.
There reasons are obvious, banking sources comment.
This process will not result in losses to their balance sheets or there will be minimal losses, as the main feature of the reprofiling will be the preservation of the nominal debt with the minor increase (or preservation) of bonds’ total return at maturity.
The majority of bonds, which banks, insurance companies and pension funds hold, are registered in investment portfolios, while only a small proportion remains in their commercial portfolio.
This means that replacing under the suitable legislation won’t work any changes on their balance sheets.
However, is remains unsolved what will guarantee the new bonds, that would replace the ones that mature in 2012-2013. The first solution was the temporary rescue fund (EFSF) but it faced Germany’s bold opposition. Angela Merkel’s position, supported by the Netherlands, Finland and Austria refers to the establishment of a Fund, which would carry properties owned by the Greek state.
This solution would face many legal and political problems at national level. For this reason, a “national consensus” is required by European member states at the Eurogroup meeting.
However, the planning run into difficulties with the unexpected arrest of Dominique Strauss-Kahn in New York.
Strauss-Kahn has been playing a distinctive but clear role of coordinator among European leaders, who were facing internal political and economic problems.
In his scheduled meeting last Sunday with Angela Merkel, he was supposed to coordinate the political constraints of the German Chancellor regarding the euro currency survival, in order to present a comprehensive proposal about the Greek problem at the Eurogroup’ meeting.
Now, European leaders have to reach an agreement without the facilitator and the authority of the IMF.
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