Greece may need more funds if bond swap falls short, deputy finance minister says

Greece may need more money from European partners if not enough private creditors sign up for a voluntary swap of bonds to cut the country’s debt burden, its deputy finance minister said on Thursday.

“If the percentage of participation is not, for instance, 100 percent, then Greece may need further support from the side of our partners to cover financial gap,» Filippos Sachinidis told Skai radio.

The comments come ahead of talks on the bond swap in Athens on Thursday between Charles Dallara, the head of a group representing private-sector banks, and Greek government officials including the finance minister and the prime minister.

Senior European bankers told Reuters on Wednesday that talks on the bond swap scheme were going badly, raising the prospect that euro zone governments will have to increase their contribution to the aid package.

Banks and investment funds have been talking with Athens for months on a bond swap scheme to cut Greece’s debt burden from 160 percent of the nation’s annual output to 120 percent by 2020.

This is central to a second, 130 billion euro ($165 billion) bailout that international lenders have drawn up to help the country avert a default which could otherwise come in March when Athens faces massive bond redemptions.

As part of these talks, banks have agreed to a «voluntary» 50 percent write-down on Greek debt holdings but have faced demands to make further concessions, which has made it less attractive for some investors to take part on a voluntary basis.

Hedge funds who have picked up Greek debt are intent on staying out of the bond swap deal, sources say. They either prefer letting the country go under, which would trigger the credit insurance they have bought, or hope to get paid out in full if enough others sign up.

Sachinidis sidestepped a question on whether Greece would insert or activate a collective action clause that would force all creditors to sign up to the bond swap if a clear majority had voluntarily done so.

“Let’s not jump ahead and let’s see how we can seal the technical agreement in such a way that it ensures two things,» he said.

“First, a high participation rate and a voluntary participation in the bond swap programme and secondly, that Greek debt ends up with characteristics that allow analysts monitoring and examining its viability to conclude that after this procedure it is sustainable.”

Policymakers insist agreement on the bond swap is near despite weeks of talks already.

Athens needs to conclude the deal and secure funding from its euro zone partners and the International Monetary Fund to be able to redeem 14.5 billion euros of maturing bonds on March 20. . A deal needs to come well before that, because the paperwork alone takes at least six weeks.

IMF chief Christine Lagarde is said to have warned Europe that Greece’s economic prospects are deteriorating and the European Union will either have to put up more money to rescue Athens or debt holders will have to stomach steeper losses. [Reuters]

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