Coercion plan for private sector

The October 27 eurozone summit agreement declared that private sector involvement in the new bailout package for Greece (PSI+) will need to reach up to 100 percent and be safeguarded by all means possible.

Leaders of the bloc have insisted that all private sector holders of Greek bonds will have to take a 50 percent haircut on the total of 206 billion euros.

The government was this week preparing to submit a draft law to Parliament by the end of January determining that if 75 percent of bondholders agree to the haircut, then all private investors will have to participate. This is known as the ?collective action clause? and is valid in most other countries.

Negotiations on the PSI+ plan have already begun, despite the unstable political conditions in Greece, and banks appear to have made it clear that they would not accept losses exceeding 54 percent of the net present value (NPV) of the Greek bonds they possess.

The discussions are proceeding without problems, but as an alternative plan the government and the troika have prepared the aforementioned bill in case the PSI+ targets are not met. However, Athens is proceeding with PSI+, as any other option could be branded a ?credit event,? something that would not be preferable at this stage.

To secure the full acceptance of the agreement by banks, the government and the troika are going to set the same condition as the one suggested in the first PSI plan, which is that if the participation of 100 percent of private sector bondholders is not secured, then Greece will reserve the right not to implement the decisions, which would leave open the option of not paying back any bonds.

Out of the 206 billion euros? worth of Greek bonds held by the private sector, 141 billion euros is in foreign portfolios, 40 billion euros in Greek banks and the remaining 25 billion in Greek social security funds.

That does not include the 20 billion euros in bonds issued by the Hellenic Railways Organization (OSE), while the European Central Bank (ECB) holds Greek bonds worth some 52 billion euros.