Never mind PSI, OSI is all the rage

With the agreement on PSI (private sector involvement) very close to completion, attention is now turning increasingly to official sector involvement, or OSI, as far as the Greek debt haircut is concerned.

Finance Minister Evangelos Venizelos called on the European Central Bank to accept some losses in order for the Greek debt to remain sustainable after the planned debt swap for the private sector that will shave some 100 billion euros off the amount of money the country owes.

The aim for the debt to stand at 120 percent of Greece?s gross domestic product in 2020 does not just require PSI, said Venizelos, but also the completion of a parallel OSI. ?This means that the ECB must be mobilized, we need to resolve issues that concern the national central banks, and we need to resolve issues regarding the level of the interest rate of the original Greek loan,? he told the PASOK parliamentary party on Thursday.

Along the same lines, Josef Ackermann, the head of Deutsche Bank and chairman of the Institute of International Finance (IIF), which is negotiating with Athens on behalf of many of Greece?s private creditors, stated on Thursday: ?We are very close and hopefully will reach an agreement within the next few weeks or days. The question is whether others will contribute as well.?

Kathimerini understands that on a technical level the ECB has already examined all possible scenarios for Frankfurt?s participation in the Greek debt haircut, with two being the most likely.

The first concerns a haircut through the bonds the ECB and other eurozone central banks bought before the support effort through the Securities Markets Program (SMP), totaling up to 60 billion euros, which would have the same reduction rate (50 percent) that the privately held bonds are set to undergo. That option will have a rather small benefit for Athens, to the tune of some 5 billion euros.

The second scenario provides for a haircut to both the above bonds and those acquired on the secondary market, which according to sources have in many cases cost the ECB no more than 75 percent of their original price. That scenario would save Greece a more significant 14 billion euros.