Frankfurt is asking Athens to provide additional guarantees in the form of bonds or cash in order for the senior notes that Greek banks will issue in the context of the Hercules asset protection scheme to be considered zero-risk.
Kathimerini has learned from sources close to the process that the European Central Bank’s Single Supervisory Mechanism (SSM) has proposed two alternatives that would satisfy the no-risk requirement for the top-tier bonds: The first is for the Greek state to provide collateral of 12 billion euros from its cash buffer, and the second is the provision of collateral through Greek government bonds of a nominal value amounting to 120 percent of the sum required; that would mean bonds worth 14.4 billion euros for the collateral of 12 billion.
Athens disagrees with the alternatives put forward, as Finance Ministry sources say that the reduction of the cash buffer, which currently amounts to 32 billion euros, would have a negative impact on the cost of borrowing on bond markets. What is more, the issue of 14.4 billion euros’ worth of bonds would affect the yield curve of Greek government paper, and therefore the management of the national debt.
The zero-risk rating of the senior notes the Greek banks will issue toward their top-quality nonperforming exposures is crucial, otherwise the lenders will need to record losses in their books from the securitizations and their capital reserves will take a hit.
The Hercules plan may have cleared Parliament last week, but the issue of whether the 12-billion-euro state guarantee for the senior notes will be sufficient without requiring any cash or bonds as collateral remains open.
The persistence of the SSM is related to the fact that the Greek state is not considered investment grade and its guarantees are not deemed strong enough. What the European watchdog is effectively doing is demanding an improvement in the quality of the state guarantees offered, and the negotiations on the matter will continue.