Is There a New Greek Debt Reduction Strategy On the Table?
The markets will be digesting a report from Reuters on Wednesday that speculates on how euro zone central banks will help Greece reach its new debt target of 110 percent of GDP in 2022. A document obtained from a meeting between euro-zone finance ministers earlier this week suggests that the central banks may roll over their holdings of Greek debt, choosing to replace maturing bonds with new bonds that would mature when Greece’s economy is more stable.
Ostensibly, given the rock-bottom prices on Greek bonds, the strategy is a clever way to reduce the amount of financing that Athens requires without assuming too much risk. The move could reduce the amount of funding Athens needs by 3.7 billion euros ($4.8 billion) between 2012 and 2014, and an additional 1.9 billion euros ($2.4 billion) between 2015 and 2016 by eliminating the need for Greece to redeem the bonds.
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The strategy is just speculation at this point as the language in the document obtained by Reuters suggests that the idea was simply considered but in no way formalized. The rollover is just one of many options officials are floating in the search for a solution, such as cutting interest on loans to Greece, deferring interest payments, and extending the timeline for maturities.
Greece has also hired Deutsche Bank (NYSE:DB) and Morgan Stanley (NYSE:MS) to conduct a voluntary buyback of debt. Reports suggest that fickle bondholder interest could be captured with a repurchase target cost of 35 cents on the euro. But if the buyback is conducted at a rate that is unfavorable to investors, negative sentiment could adversely affect Greek banks, which have already seen their shares drop since Tuesday over buyback concerns. Greek banks and pension funds currently hold about half of outstanding Greek bonds.
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