Bloomberg News

Euro Finance Chiefs Confident Greek Buyback to Succeed

December 04, 2012

Euro-Area Finance Chiefs Confident Greek Buyback to Succeed

Wolfgang Schaeuble, Germany's finance minister, left, listens to Pierre Moscovici, France's finance minister, speak during their joint news conference at the European Union (EU) finance ministers meeting at the European Council headquarters in Brussels, Belgium, on Tuesday, Nov. 13, 2012. Photographer: Jock Fistick/Bloomberg

European finance ministers voiced confidence that Greece will pull off a successful bond buyback, the key element in a revamped effort to stem the debt crisis in the country where it started.

Greece began the 10 billion-euro ($13 billion) repurchase of bonds maturing from 2023 to 2042 yesterday, offering a higher-than-planned price in order to increase demand for the debt-reduction measure.

“I’m confident it will go well,” French Finance Minister Pierre Moscovici told reporters after euro-area finance chiefs met in Brussels. “It seems to be happening under satisfactory conditions.”

European governments are counting on the buyback as a market-based way of cutting Greece’s debt, paving the way for continued aid payouts. Finance ministers set a Dec. 13 meeting to release the next 34.4 billion euros for Greece and possibly wrap up bailout talks with Cyprus, which would become the fifth country to tap international aid since the crisis erupted in late 2009.

Once dismissed by European officials as a high-risk, low- reward method of debt reduction, the buyback became part of the Greek package after Germany rejected the writeoff of official loans as a way of easing the country’s financial plight. The euro fetched $1.3070 as of 7:47 a.m. in London from $1.3054 yesterday, when it touched $1.3076, the most since Oct. 23.

Debt Reduction

German Chancellor Angela Merkel has since indicated, in a Dec. 2 Bild newspaper interview, that official debt relief might be in the offing, as long as Greece starts posting operating budget surpluses in 2014 or 2015. That timeline would put off a decision to lump German taxpayers with losses on loans to Greece -- something Merkel promised would never happen -- until after a German election in late 2013.

To persuade the International Monetary Fund to continue chipping in a third of the Greek loans, the euro ministers last week announced debt-reduction steps including lower bailout loan rates and a recycling of the European Central Bank’s profits on Greek bonds back to the Athens treasury.

In all, the measures will trim Greece’s debt as of 2020 to 124 percent of gross domestic product from a previous estimate of 144 percent. The buyback would be the biggest component, lopping 11 percentage points off the debt.

“It’s all going in the right direction,” Luxembourg Finance Minister Luc Frieden said. Austrian Finance Minister Maria Fekter said she is “very confident” that the bond operation will work out.

‘Small Margin’

The buyback is for the 62 billion euros of new bonds issued when Greece carried out history’s biggest writedown of privately held debt in March. Greece offered to buy bonds from the market at 33.1 percent of face value, above a target set by creditors which was estimated at 28.1 percent by Royal Bank of Scotland Group Plc analysts.

“It looks as if it will be successful, or if they miss the target, they will miss it by a small margin,” said Spyros Politis, chief executive officer of Athens-based TT-ELTA AEDAK, which oversees about 300 million euros of assets and owns Greek government debt. “Anything that reduces the overall debt burden is good.”

At the same time, a higher buyout price would translate into less debt reduction on each bond. Greek bonds rose for a third day, pushing the 10-year yield below 15 percent for the first time since the March debt restructuring. Greece’s tender offer runs until 5 p.m. London time on Dec. 7.

‘Very Unique Case’

After cutting the bailout loan rates last week and giving Greece more time to pay them back, the finance chiefs showed no appetite for granting similar concessions to Ireland and Portugal (GDBR10), two countries aiming to return to market financing in 2013.

Greece is a “very unique case,” German Finance Minister Wolfgang Schaeuble said. “For Ireland and Portugal, which are on the verge of regaining access to markets, it would be a devastating signal and I would really advise them not to pursue this point any further.”

The aid programs are also different. Greece was the only country to obtain bilateral loans, in its first package. Its second package tapped the European Financial Stability Facility, also used for Ireland and Portugal. The concessions to Greece came at a price, with creditors demanding additional economic reforms and claiming unprecedented control over how disbursements are spent.

Irish Finance Minister Michael Noonan signaled that easier terms may be too much to ask for, saying Greece was saddled with “onerous” conditions to obtain them. Still, he said, Ireland will see “if there’s something in the Greek deal that offers us another element.”

‘Interesting Idea’

Noonan called two points -- the reduction in EFSF lending rates and a 15-year extension of maturities -- “an interesting idea.” Portugal is pursuing similar concessions, based on a July 2011 pledge by European leaders to treat aid recipients equally.

While insisting on getting a break from creditors, Portuguese Finance Minister Vitor Gaspar said talks over concessions will be “complex both from a technical viewpoint and a political viewpoint.”

Separately, Luxembourg Prime Minister Jean-Claude Juncker confirmed plans to step down as chairman of the ministers’ meetings by early 2013, and declined to endorse a successor.

To contact the reporters on this story: James G. Neuger in Brussels at; Mark Deen in Brussels at

To contact the editor responsible for this story: James Hertling at

Best LBO Ever
blog comments powered by Disqus