EU studies ideas on Greek debt

Eurozone members are studying a number of measures that will help Greece to service its debt, but this will entail fresh interventions by Athens in the context of streamlining its finances.

There are three main aspects to the plan regarding the Greek debt that is unofficially under discussion at the European level.

The first concerns the extension to the repayment period for the 110-billion-euro loan from the European Union, the European Central Bank and the International Monetary Fund with a reduction on the interest rate imposed from 5-5.5 percent today to about 3.5-4 percent. The decision for the extension has already been made, with negotiations now focusing on the exact dates. Reuters suggested that the repayment could be completed in 30 years, from just three under the existing deal.

The second parameter is about the buyback of Greek bonds from the ECB or any other investor that wishes to cash in on the bonds they hold. The ECB currently possesses some 58 billion euros? worth of Greek debt. The buyback of those bonds is estimated to come with a discount of about 20-25 percent on average. This way the Greek finance minister will be able to eradicate 10-14 billion euros of the public debt.

The Financial Times reported on Monday that Greece is discussing a proposal with the European Commission and the IMF about Athens borrowing up to 50 billion euros from the European Financial Support Fund (EFSF) to buy back loans at 75 percent of their nominal value.

The third main aspect of the plan concerns the extension to the repayment period for the bonds that Greek banks possess. This is meant to bolster the effect of the first two parameters, as they would not be sufficient without an extension to the repayment of the bonds of some 60 billion euros owned by local lenders.

Finance Ministry officials suggest that the government ?is holding discussions on the decision already made to extend the loan period? and that ?governments discuss specific proposals and not ideas,? in an effort to dismiss talk of alternatives under examination.

However, the Guardian newspaper in London revealed that the European Commission is conducting behind-the-scenes talks to cut Greece?s debt and is in favor of Athens buying back the bonds the ECB holds.