IMF: Rollover would raise debt levels

The rollover of the Greek debt will lead to it increasing considerably, by up to 172 percent of the country?s gross domestic product next year, as the state will need to supply funds to Greek banks to cover their losses from their participation in the new bailout package for Greece, the International Monetary Fund warned on Wednesday.

In its quarterly report, which explains its decision to release the fifth tranche of its joint rescue package with the European Union, the Fund deems almost certain that Greece will be forced into ?selective default? regardless of the exact contribution of the private sector to a second bailout package.

The issue was also discussed by European officials in a videoconference, and a Eurogroup meeting on Friday remains a possibility a positive development that could trigger an EU summit on Monday or Tuesday.

In its report, the IMF revises the level of the Greek debt from 153 percent of GDP as previously seen to 166 percent this year, and says it expects it to peak at 172 percent next year, up from March estimates for 159 percent. As a result, the debt is only seen going down to 159 percent by 2020, rather than 130 percent, as originally estimated.

The reason for this major increase is that by the end of 2012 the state will have to grant banks 23.7 billion euros, of which 19.5 billion will be needed in the last quarter of 2011. This capital boost constitutes cover for the banks? participation in the private sector?s contribution to the new package supporting Greece.

As a result, the first installment of the loan to be agreed for the country?s second bailout package will amount to 24.7 billion euros, according to the IMF.

This capital should be adequate to cover the fiscal needs of the state in the last quarter of the year and to fund Greek banks.

The IMF report refers to a likely rollover of bonds or an extension to their maturity period, but there is no mention of a haircut or a buyback of state bonds.

On the contrary, Europe is leaning ever more toward the bond buyback option. Sources suggest there was a videoconference of the preparatory committee of the Eurogroup yesterday which focused on renewing bonds maturing by 2019 with the simultaneous purchase of Greek paper. These bonds amount to an estimated 180 billion euros and a buyback would benefit Greece by 20-30 billion euros.