Oct. 27 (Bloomberg) -- Greece will pass through a short period of “technical default” in the final stages of a newly agreed bond exchange, said Charles Dallara, managing director of the Institute of International Finance.
The default period “should last no more than a matter of weeks, maybe only days,” Dallara said in an interview today on Bloomberg Television’s “The Pulse.” He said this should be “seen in a completely different light than a broad, real default.”
It will take “weeks” to work out the final details of the debt swap, such as the reductions in net present value that participating banks will have to write down, Dallara said. He said he’s confident the deal will attract “voluntary” participation and involve “manageable” reductions for banks.
The accord, which seeks to reduce Greece’s debt to 120 percent of gross domestic product in 2020, from the 162 percent forecast for this year, was announced as part of a broader package of measures aimed at ending the region’s debt crisis agreed to at a summit of European Union leaders in Brussels.
The debt swap involves “a nominal reduction in the value of Greek debt, all Greek government debt held by private citizens,” he said. There will also be 30 billion euros ($42 billion) in official funding that “would be used to collateralize new Greek claims in order to moderate the loss of value between the old claims and the new claims,” he said.
The participation rate by banks in the plan will be “very, very high” Dallara said earlier in a briefing with reporters in Brussels.
--Editors: Andrew Davis, Fergal O’Brien
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