The government is expected to make its official proposal to private holders of Greek bonds for the private sector involvement (PSI) in the debt swap by the end of this week so that the process can be completed by March 5. Soon after it will submit an application to the International Monetary Fund for the approval of the new loan to Greece. The government will not get any cash from the European Financial Stability Facility (EFSF) to cover its PSI and bank liquidity needs. Instead it will receive bonds. The memorandum voted on in Parliament last night provides for 30 billion euros to come to Greece for the implementation of the PSI. After the haircut on existing bonds, new ones will be issued with bondholders receiving 30 cents in EFSF bonds for each euro of their Greek securities and another 70 cents in Greek bonds.
The State General Accounting Office estimates that the bonds to be swapped have a total value of 200 billion euros (as opposed to 211.7 billion euros in the original plan). It also says that new Greek bonds worth 70 billion euros will be issued that will add to the country’s debt. Another 35 billion euros will be spent on securing the smooth funding of local banks in the coming month. This will allow Greece to sidestep the problem of its bonds entering the “selective default” category once the collective action clauses are voted on in Parliament.