Published November 30, 2012
BRUSSELS – Euro zone finance ministers will discuss on Monday the terms of the Greek debt buy-back to be announced that day and review a Cypriot bailout, though no decision on Cyprus will be taken, a senior EU official said on Friday.
The Greek buy-back is a key part of a debt reduction plan agreed by international institutional lenders to cut Greek debt to 124 percent of GDP in 2020 from close to 190 percent seen next year to make the debt sustainable.
The buy-back intends to cut the debt by an amount equivalent to 11 percent of GDP, according to assumptions agreed by euro zone finance ministers on November 27. Given Greek GDP is about 200 billion euros, a 20-billion euro reduction in debt is implied.
Details are not due until Monday of the buy-back scheme and of how much of the 63 billion euros of Greek debt still in private hands the euro zone and Athens want to re-purchase.
Two euro zone officials said the bloc hoped Greece would be able to repurchase at least 40 billion euros of its own bonds from private investors. Ministers have said the price offered by Athens for bonds under the voluntary operation should not be higher than the closing price of November 23.
Because there are various maturities trading, the price range is from 25.15 to 34.41 cents. Euro zone ministers have penciled in 10.2 billion euros for buying back Greek bonds.
The senior European Union official who described plans for Monday's meeting of euro zone finance ministers said: "We will take stock of the terms and conditions of the buy-back operation which, by then, will have been launched by the Greek authorities. There will be a debriefing by the Greek minister on the steps he will have taken by then, the time period.
"On Monday you will see it all."
The buy-back must be completed by December 12, so that euro zone finance ministers and the International Monetary Fund can review its results on December 13 and decide if it went sufficiently well for other elements of their debt reduction plan to go ahead.
These include a reduction of interest rates on bilateral government loans to Greece, extending loan maturities, deferral of interest payments and the return of European Central Bank profits on Greek bonds bought on the market.
The backing of the IMF for the Greek debt reduction plan, and therefore its participation in the program in its current form, hinges on the outcome of the buy-back.
The EU official would not say what the expectations were for the buy-back to be considered a success, but noted:
"If the expectations are missed on the downside, it depends by how much. If it is by a small margin, personally, I would shrug my shoulders. If by a lot, then we need to regroup.
"I have no forecast, but people would not just shrug their shoulders, life would not just go on, it would be a very, very challenging situation," he said. "That said, I am confident that the debt buy-back will work as foreseen.
"There is a very clear expectation that the Greek financial system as a whole will participate in the debt buy-back."
The ministers will also discuss a draft Memorandum of Understanding (MoU) with Cyprus on a bailout that would enable the country to recapitalize its banking sector and ensure financing for the government at an affordable rate.
"We have received a draft MoU, which outlines the building blocks for a potential program and we will be discussing on December 3 what are the pertinent elements for the Eurogroup - the outlook for debt sustainability, the timelines involved," the official said.
"I would presume that an important step will be made."
A draft of the deal seen by Reuters showed Cyprus requiring up to 10 billion euros ($13 billion) to refinance its banks, which have been severely affected by the euro zone debt crisis and exposure to Greece.
But for the final agreement on Cyprus, the ministers need the results of an audit of Cypriot banks, which will show how much money the sector will need to boost capital. This will be ready towards the end of next week or early in the week after that, the senior EU official said.
Cyprus has made preliminary plans to take up to 10 billion euros for its banks, its central bank governor said on Friday. Another 7.5 billion euros could be needed to cover its fiscal needs, Cypriot media have reported.
(Editing by Alastair Macdonald)