Greece urges ECB to partake in debt swap

The European Central Bank must take part in Greece’s debt swap, finance minister Evangelos Venizelos said yesterday, warning that a rescue package for Athens also hinges on other issues being resolved such as labour reforms and how Greek banks are to be recapitalised.

Prime Minister Lucas Papademos still hasn’t secured broad political support for yet more austerity — another key condition to clinch a deal and avoid a chaotic default. A meeting of political leaders has yet to be pinned down.

Officials have said repeatedly that a deal is around the corner, and EU Economic Commissioner Olli Rehn reiterated yesterday the debt swap deal could be agreed by the end of the week.

Eurozone finance ministers aim to approve the second package for Greece on Monday, including agreement on official new financing, the size of voluntary losses private bondholders are willing to accept and new reforms Athens must undertake.

With Greece’s talks with banks and insurers almost complete, the focus has turned to determining whether and how the ECB and other central banks would take part in the debt swap deal, as well as trying to coax Greek party chiefs into backing reforms so that a €130 billion rescue plan can be secured in time.

“In parallel with negotiations with private creditors, there must be negotiations for the official sector involvement. This means that the ECB must be mobilised, and we must resolve issues pertaining to national central banks,” Mr Venizelos told socialist party lawmakers.

Commercial banks have long been demanding that the ECB, the largest single holder of Greek bonds, should share in the restructuring burden in one form or another instead of booking profits. The ECB could send Athens profits from Greek bonds it holds via a roundabout route that would provide aid while respecting a ban on the ECB financing governments directly, sources said.

German finance minister Wolfgang Schaeuble said yesterday that public sector creditors had already done enough to help alleviate the country’s debt crisis.

“Greece needs a reduction of private debt claims of around 50%,” he told German broadcaster NTV. “An additional contribution from the public sector is not needed.”

All sides are worried that the debt swap, in which investors incur losses of about 70% to ease Greece’s debt burden by €100bn, will not do enough to bring its debt down to the 120% of GDP level considered sustainable.

Mr Venizelos said the government was also locking horns with the EU and IMF on the recapitalisation of banks after the debt swap deal. The government does not want to nationalise the lenders, he said.

Technocrat premier Mr Papademos faces the daunting task of rallying reluctant political leaders behind unpopular wage and pension cuts. Mr Papademos will meet the socialist, conservative and far-right leaders in his coalition this evening or tomorrow in a bid to persuade them.

Unemployment hit a record high of 18.4% in August last year and nearly one in two young Greeks are out of work. Economists expect the Greek economy to shrink 3.7% this year after a 6% slump last year.

In the latest evidence of the economic pain, Athens Archbishop Ieronimos wrote to Papademos on the growing “nightmare” imposed by lenders. “They are asking for even bigger doses of a medicine that has proven lethal,” he wrote.

Without the second bailout and a debt swap deal with private bondholders, a chaotic default could come as early as March 20, when Athens must buy back €14.5bn of debt.

“As a country, we are on the verge of an official default,” government spokesman Pantelis Kapsis said.

— Reuters