The Eurogroup’s preparation council of national finance ministry officials, known as the Euro Working Group, is on Tuesday expected to examine the possibility of redistributing the resources already approved for the second bailout package to Greece, amounting to 130 billion euros.
Ahead of Wednesday’s Eurogroup meeting of eurozone finance ministers, the bloc’s governments are considering how they can cover the likely increase in Greece’s needs for financing its debt without upping the amount they will provide.
That does not affect the certainty that the Eurogroup will tomorrow approve the release of the package to Athens.
After the 50 percent haircut on the nominal value of the existing Greek bonds, creditors are destined to receive new bonds for the remaining 50 percent of their value, with 15 percent coming from the European Financial Stability Facility (EFSF) -- amounting to 30 billion euros -- and 35 percent from the Greek state.
Bank sources say that one of the proposals on the table concerns the reduction of the EFSF participation to just 10 percent, with the remaining 40 percent covered by new Greek bonds. This means some 10 billion euros will be released for the EFSF to be able to cover the Greek deficit if that is deemed necessary. On the other hand, that would entail a larger burden on the Greek debt than was originally calculated.
The decision regarding such a shift would depend on two crucial factors. The first is the International Monetary Fund’s latest Debt Sustainability Analysis (DSA), which is used for decision-making regarding the funding programs for Greece.
For the DSA to be completed, the full terms of the debt swap process must be made clear, which is why the eurozone will tomorrow approve the start of the official private sector involvement (PSI) process. The aim is for Athens to make the official PSI proposal by Friday.
The other factor is the possible participation of the European Central Bank in the restructuring of the Greek debt. That could lift an additional 13 billion euros off Greece’s back.