Thursday April 24, 2014 Search
Weather | Athens
23o C
15o C
Survival Guide
Greek Edition
PIMCO boss calls for restructuring of ECB-held debt too

PIMCO CEO Mohamed El-Erian says the possibility of activating collective action clauses (CACs) is an important option for Greece and one that should not be given up easily.

By Tom Ellis

Speaking in an interview with Kathimerini at what is a crucial point in the negotiations between Greece and its private creditors, Mohamed El-Erian, CEO of the Pacific Investment Management Company -- the world’s largest bond fund better known as PIMCO -- says that only a haircut greater than 50 percent could restore medium-term debt sustainability and growth for Greece.

In that context he calls for an indirect haircut on the bonds held by the European Central Bank and suggests an “operational” way in which that could be done. El-Erian also says the possibility of activating collective action clauses (CACs) is an important option for Greece and one that should not be given up easily, while he cautions against moving too hastily in issuing the new bonds under British law instead of Greek law.

Is the 50 percent haircut enough for Greece?
According to our analysis, 50 percent is not enough for Greece to restore credibly the conditions for medium-term debt sustainability and economic growth. A 50 percent haircut would still leave open way too many questions about Greece’s economic and financial outlook.
Should there also be a haircut on the bonds that the ECB bought?
What is absolutely critical for Greece and its official creditors, including the ECB, is to ensure that the objective of a sustainable debt stock is paramount. There are operational alternatives. For example, in order to avoid an explicit haircut, the ECB bonds could be transferred to an EU balance sheet, old or new, and treated similar to the procedures for the Paris Club. Also, the maturities could be extended in order to provide for the benefits of a debt reduction to Greece.
Should Greece activate CACs so that the agreement covers all the bondholders?
The possibility of using Greek law to activate CACs is an important option for Greece, and it is one that should not be given up easily. It is critical to recognize forcefully that Greece’s degrees of freedom would decline significantly once it agrees to a different treatment of its bonds, especially and importantly when it comes to legal jurisdiction.
Would such a move create a credit event and, if so, what would that mean for Greece’s effort?
There is a risk that several of the things that reportedly are being considered right now would end up triggering a credit event. Unfortunately, there is no first best solution given the severity of the situation in Greece. What is critical here is not to put the threat of a credit event above everything else.&?nbsp;The key is to be able to do something that is credibly associated with medium-term debt sustainability and economic growth. The benefits of getting this right far exceed the cost of a credit event.
Will Greece remain in the eurozone?
The decision of whether to remain in the eurozone is one that has to be made by the Greeks themselves. If Greece decides to remain within the eurozone, it would be signing up for many years of “internal devaluation,” namely, using wage and expenditure compression as the tools to regain competitiveness and jobs. Exiting the eurozone provides greater policy flexibility, but this comes at a cost of significant initial disruptions that, in the immediate instance, would undermine both economic activity and the financial system yet offer better prospects for subsequent and sustained recovery.
How important is it to have the new bonds issued under British law instead of Greek law?
Bondholders are looking for greater legal protections. It is also why Greece has to make sure that the shift from Greek to British law is undertaken in the context of an overall economic and financial solution that is sustainable. , Monday Jan 16, 2012 (22:19)  
Expanding the social dividend base
National Bank determined to remain in the Turkish market
Ferries to start using LNG
Investment fund off the ground
Free drugs for uninsured Greeks
There are between 1.9 and 2.4 million Greeks, or roughly 20 percent of the total population, without social insurance, Health Minister Adonis Georgiadis said on Wednesday as he announced pla...
SYRIZAs preparation for elections upset again
SYRIZA's preparations for next month's local and European Parliament elections suffered another blow on Wednesday as Ahmet Kurt, one of the leftist party's candidates for the regional counci...
Inside News
Never underestimate the Greek hoopsters
Olympiakos and Panathinaikos, who between them have won the last three European crowns, won again at home on Wednesday to take their Euroleague play-off series with Real Madrid and CSKA Mosc...
Reds and Greens stay alive in Euroleague
Easter and home advantage worked wonders for Panathinaikos and Olympiakos who stayed alive in the Euroleague play-offs beating CSKA and Real Madrid respectively on Monday in Greece. Shak...
Inside Sports
Its too soon for Europe to declare victory
There was a time not so long ago when the vast majority of experts agreed that a country could not emerge decisively from a financial crisis unless it solved problems of both stocks and f...
Realitys other side
There is plenty of evidence pointing to the fact that the countrys real economy has hit rock bottom and is currently entering a phase of growth. Those who know the market well tend to suppo...
Inside Comment
1. Never underestimate the Greek hoopsters
2. Expanding the social dividend base
3. National Bank determined to remain in the Turkish market
4. Ferries to start using LNG
5. Investment fund off the ground
6. Stocks decline after three days of growth
more news
This Week
1. FBI seeks to identify victims of suspected US child molester who worked abroad, including Greece
2. Greek debt swells again as Samaras looks to creditors for relief
3. Woman dies after falling off state building roof
4. Tunisian sought over employment scam
5. Greece qualifies for new debt relief after 2013 budget surplus
6. Greece sees 2013 primary budget surplus at 1.5 bln euros, says deputy finance minister
This Week
1. Greece startup leaders say they cant break jobless cycle alone
2. Ground-breaking Good Friday mass signals thaw in Cyprus
3. Mayoral candidates clash over Athens mosque plans
4. Government looks to kick on
5. Greece offers to help find Turkish F-16 lost in 1996
6. EU struggles to unpick the knot of Russia-Ukraine gas logistics
Find us ...
... on
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2014, H KAΘHMEPINH All Rights Reserved.