The big wigs met yesterday in Paris with the goal of making peace with Euro authorities vis-à-vis how investors will participate in the Greek sovereign debt reconstruction. According to an article in The Financial Times, this is also meant to ease Greek’s burden as well as make the “banks’ original plan that would have seen them roll over for 30 years half of their holdings of Greek debt due to mature in the next three years.”
Other Banking Meetings
This isn’t the first meeting the Eurozone banks have had on this matter. Indeed, just last week there was another meeting held “under the auspices of the Institute of International Finance.” The aim of this meeting was to work out the exact terms of the voluntary plan, utilizing a French banking federation blueprint that was endorsed by the country’s president, Nicolas Sarkozy, as its negotiation starting point.
Another of the plans involved a way of making Greece’s government purchase “top-grade European debt – most likely issued by the European Financial Stability Facility – as an insurance policy against default.” The maturing debt (which is the equivalent of 20 percent) over the next three years will be put into that collateral pool.
It was definitely good that the French banks received the support of their country’s government. But at the same time it was probably somewhat disappointing for them that they didn’t get that from other governments. Apparently various Euro officials and Greek negotiators were heard to be “complaining that the terms were too limited.” Further, the only monetary commitment from German financial institutions was a rollover of €3.2bn.
The main parts of the first part of the French plan (rollover debt and the coupon) are now going to be altered. With the new proposal, according to one individual to the talks, the interest rate will drop to as low as 5.76 percent with a floating basic coupon that will be dependent on the Euribor 3-month rate which right now stands at 1.56 percent as well as a small buffer of 1.7 percent.
Greek Debt Issues
The Greeks are definitely exceedingly reliant on their French and German neighbors, especially since the largest private sector holders of the country’s debt are these countries’ “banks, insurers and pension companies.” But right now no one knows exactly how much of that total “falls into short-dated maturities covered by current talks.”