Eurozone ministers set to finalise bailout details

Eurozone finance ministers will meet in Brussels this evening, when they expect to finalise details for a second bailout for Greece together with cuts on bondholders that will trigger a temporary selective default.

Political leaders met in Athens to approve the latest austerity package for the country that will see savings of around €3.3bn on the country’s budget that include cuts to the minimum wage, pensions, health and military spending, and a 15% cut in the country’s public service.

Private creditors are to meet in Paris today to discuss the details of the debt swap on the bonds they own. They are expected to accept an average coupon of around 3.6% on new 30-year bonds. They sought initially a rate of around 4%, but this was ruled out by the troika and eurozone finance ministers last month.

Charles Dallara, Institute of International Finance managing director, representing the investors, will brief them on the details and begin the complex matter of putting the deal into practice that means a haircut for them of around 50%.

They are believed to hold around €47bn of Greek debt, but it is still unknown how many investors will take part in the swap.

There were reports from Frankfurt of disagreement among the ECB members on their involvement. They have been under pressure to take a hit on their €55bn worth of Greek bonds also, but Germany and the ECB was not anxious to do so.

There was an expectation, however, that they would come to an arrangement on a bond swap that would reduce the Greek debt by about €11bn. The EU ad hoc fund, which contributed part of the initial €110bn, could also find it takes a haircut. In the end, cuts in both the ECB and ad hoc fund will cost the eurozone members.

Irish politicians and officials are watching closely any arrangement the ECB and the EU’s lending fund comes to with Greece to see if it offers an opportunity to argue for a cut in the borrowing cost to this country.

Finance Minister Michael Noonan said he was hopeful that an arrangement could be made with Greece and said that Ireland was watching closely any agreement between Greece and the ECB.

However, sources close to the ECB insisted that the Greek case was unique and could not be repeated elsewhere.

The immediate emphasis is on trying to reduce the Greek debt to sustainable levels, which is around 120%, according to the IMF, which cannot be involved in lending to countries whose debt is above this level.

But as a sign that Greece’s troubles are far from over even if the current complex arrangements are all agreed, Standard & Poor’s said yesterday that without a 70% reduction in the value of bonds held by private creditors, the country’s debt will not be sustainable.

The agency said it intends to downgrade Greece to a “selective default”, but only on a temporarily basis while the government concludes its debt swap.