EFSF delay hampers PSI completion

The successive postponements to the approval of the conditions for the Greek debt swap have brought about changes to the already tight timetable set for the process of the private sector involvement (PSI) plan.

The main problem is that the eurozone countries have not yet ratified the increase in the guarantees of the European Financial Stability Facility as agreed last October. The original plan had been for the approval to come on February 7 or 8 and the official proposal to be made last Monday.

Now the official proposal will be made next week at the earliest, and without the ratification of the EFSF changes by the member states? parliaments. The increase in the EFSF guarantees is of vital significance for the PSI implementation, as the facility will supply a total of 93.7 billion euros in guarantees for the debt swap to proceed smoothly.

It is clear that the delay in the approval of these guarantees is increasing fears of a possible failure in the process, with investment bank Lazard warning that if the EFSF has not collected the funds in time there will be a three-week period of dangerous uncertainty for bondholders.

With the position of the European Central Bank still unclear regarding its possible participation in the haircut, either directly or indirectly, the terms of the agreement with private bondholders have been set, with the target being to relieve Greece of some 100 billion euros of debt.

It is safe to say that the new bonds will have a 3 percent interest rate if they mature by 2020, a 3.75 percent coupon if they mature after 2020 and an average rate for their whole period of 3.4-3.5 percent; they will have a 30-year maturity period and will contain a growth clause.

That clause will provide that if Greece has two consecutive years of growth, with the second year posting a GDP increase of more than 2 percent, the new bonds? interest rate will increase by 1 percent.

French lender BNP Paribas has already proceeded to a 75 percent haircut on the Greek bonds in its portfolio, suffering losses of 567 million euros from the haircut in the last quarter of 2011.