Europe

Europe

Greek FM rejects "haircut" scenarios in orderly default

23 September 2011 23:44 (UTC +04:00)

Baku-APA. Greek Deputy Prime Minister and Finance Minister Evangelos Venizelos dismissed on Friday fresh scenarios in local media reports that the government examines the prospect of an imminent "haircut" of up to 50 percent on the Greek debt to tackle an acute debt crisis under a kind of planned default, APA reports quoting Xinhua.

Greece remains committed to "doing everything in its power for the full and on time" implementation of the eurozone July 21 agreement on the further support of Athens to overcome the challenge, said a statement released by the ministry.

In this context, Greece takes "hard and tough measures in order to achieve its fiscal targets" and from this year to 2014, promotes structural changes, a privatization program as well as the Greek bond swap plan that involves private holders of Greek bonds under the July 21 pact, added the statement.

"All other discussions, rumors, comments and scenarios that distract attention from this central goal ... do not offer good service towards our common European case," underlined Venizelos, as Greek media reproduced a report print on "Ta Nea" (The News) daily over a possible orderly restructuring of the Greek sovereign debt management.

According to the report, which cites unanimous sources, during a closed briefing of ruling socialist PASOK party deputies on Thursday, the minister presented three scenarios for the debt-ridden country in coming weeks and months.

In one of them, Venizelos is seemed to have implied that Greece could end up asking creditors to accept a 50-percent "haircut" on their Greek bonds.

Under the July 21 deal, private sector bondholders have already been invited to accept a 21-percent loss on their Greek bonds maturing before 2020, exchanging them for longer term ones.

In order to avoid an economic collapse with major repercussions for the entire eurozone, a further "haircut" of the Greek debt should be done in "full cooperation" with foreign lenders, after the parliamentary vote on the 2012 budget in late October, Venizelos is said to have told deputies.

In the worst scenario, without further support by European Union/International Monetary Fund creditors and such a deal on a planned default, Greece could go bankrupt in a disorderly manner.

In the best scenario on the table, Greece will fully implement its three-year austerity and reform plan to exit the crisis, as agreed in spring last year, when the country first secured EU/IMF bailout loans to escape default, slash deficits and return to growth.

Delays in the implementation of the program in recent months and increasing pressure from lenders for swift results have fuelled rumors of negative scenarios materializing in coming weeks and months.

Without the next EU/IMF aid tranche this autumn, Greece could run our of cash by mid-October, Greek officials have said.

In this framework on Friday, international credit rating agency Moody’s further downgraded the ratings of eight Greek banks. The National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Attica Bank, Agricultural Bank of Greece and Piraeus Bank were downgraded to Caa2 from B3, while Emporiki Bank and General Bank (Geniki) to B3 from B1.

According to Moody’s, the decision was made based on the negative indexes regarding the condition of the Greek national economy which affects the state of the local banking sector, since Greek financial institutions are heavily exposed to Greek state bonds.