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Greece: New PSI haircut around 30-50 percent

13. October 2011. | 09:12

Source: Athens News

Losses for private investors on Greek debt in the second financing package are likely to be between 30 and 50 percent, rather than the earlier agreed 21 percent, eurozone officials said Wednesday.

Losses for private investors on Greek debt in the second financing package are likely to be between 30 and 50 percent, rather than the earlier agreed 21 percent, eurozone officials said Wednesday.

The eurozone is reviewing the terms of its second financing package for the country, including the private sector contribution, because Greece is in a deeper than expected recession and market interest rates have changed since then.

International inspectors now do not expect Greece to return to growth until 2013, rather than the earlier forecast 2012, which, together with delays in structural reforms and privatisation, increases financing needs.

The additional costs will have to be redistributed between governments and private investors.

Eurozone leaders agreed on July 21 to provide 109 billion euros to the country in new official financing, together with the International Monetary Fund until mid-2014.

In addition, under a voluntary debt restructuring deal, private creditors would end up taking a loss of about 21 percent in the net present value of their Greek bond holdings -- what is called a "haircut" -- contributing an estimated 50 billion euros on a net basis through mid-2014.

Four eurozone officials confirmed that a haircut of 30 to 50 percent for private investors was now under consideration, but said no final decisions or agreements have been reached.

"It is still very much in the open and remains to be seen what the initial reaction of private investors will be," one eurozone official said.

"A voluntary participation is the target, for now at least, and many feel strongly that we must avoid any risk of full default," the official said.

"The haircut will be set at a level compatible with the voluntary nature of the private sector involvement," a second eurozone official said.

The second financing program for Greece, funded through the European Financial Stability Facility (EFSF), the eurozone bailout fund, is to replace the first 110 billion euro bilateral emergency aid package from 2010.

Sources said that therefore the disbursement of the next, 8 billion euro tranche would most likely be the last one under the old program and the remaining 37 billion euros of undisbursed funds would be folded into the second financing program. (Reuters)


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