The unfolding debt deal

The Financial Times are today reporting that last week’s impasse between Greece and private holders of its debt is being resolved with a sliding interest rate that favours the long-term investor. Interest will begin at 3 percent and rise to 4.5 percent, averaging about 4.25 percent over the lifetime of the bonds, according to the newspaper. 

The talks had stalled after German negotiators apparently introduced a sharply lower rate than the one that was on the table during the final stages of talks. According to one banker quoted by the FT, the deal would represent a writedown of a whopping 68 percent of the debt. 

If these details are confirmed, it would mean that the reworked offer has one chief priority – to favour banks and long-term investors over speculators – the two main groups of bondholders. 

It would do this in two ways; firstly, by discouraging immediate resale of the new bonds. A three percent initial interest rate lowers the so-called net present value – a calculation of a bond’s market value if it is sold before reaching maturity; secondly, by keeping the bond remuneration at a minimum (closer to 30 percent of the value of the original bonds Greece is effectively defaulting on. That is the discount German Chancellor Angela Merkel famously imposed on the Institute of International Finance last July, revised to 50 percent settled in October’s European summit). This penalizes hedge funds that have been buying up Greek bonds since the bond buyback scheme was announced last year. They were able to pick them up at the roughly 25-30 percent of face value, on the reasonable safe gamble that the European Financial Stability Facility would offer a better rate than the markets. The vast majority of the bonds, after all, are held by banks (an estimated 40 billion euros’ worth are held by Greek banks, and roughly twice that amount in banks across Europe, while the European Central Bank holds roughly a further 45 billion) and the EFSF was set up to provide liquidity to the banking system as well as governments. In other words, hedge funds were buying a free ride on a European Marshall Plan. The concomitant bank refinancing one would expect ought to be quite generous, given the severe haircut on the bonds. About 40 billion euros of a second, 130 billion euro bailout promised to Greece are said to be earmarked for banks. In the event, the amount could be higher. 

There may be two reasons for this change of heart on the part of the Germans, the eurozone’s only remaining large, triple-A rated economy now carrying a disproportionately high influence in negotiations. One is that the cost of money available to the European Financial Stability Facility has gone up since Standard and Poor’s earlier this month downgraded six eurozone economies, including France. That may have made German policymakers less charitably disposed towards parts of the financial world, including risk assessors and hedge funds.  The other is Germany’s known distaste for speculators and derivatives – bets against success – that can apply to countries as well as companies.

The counter-bets are particularly irksome to the Europeans right now. Not all bondholders are in favour of a settlement. A small group, owning about five billion euros’ worth of bonds, are also invested in credit default swaps, which insure them against up to 100% of losses.  There are also an alleged 35 billion euros’ worth of CDSs in the hands of non-bondholders who have simply bet against a consensual settlement. CDSs cannot be triggered if their owners voluntarily accept a discount on bonds.

The known unknowns

Remaining to be seen is what proportion of the old bonds will be paid out in cash upon maturity, and what proportion will be rolled over into the new bonds with variable interest. Given the German mood one would expect a smaller rather than a larger up-front payout.

Even more important will be whether the ECB’s sizeable stake will be included in the writedown. Were that to happen, the effect on Greece’s long-term hopes of solvency would increase. In addition, Greece would then more easily implement a collective action clause, making participation in the scheme compulsory for all its bondholders.

Also key, of course, will be the calculated effect on Greece's bottom line. The plan is to reduce Greece's debt to 120 percent of GDP by 2020, down from more than 150 percent today. There are , like Athens University economist Yannis Varoufakis, who claim that Greece will not be deemed solvent even after a successful writedown.

Portrait of a philhellene

The following interview with Christopher Hitchens is being republished on the occasion of his death on December 15. It was originally published in the Athens News in May 2009, when Hitchens was in Athens to visit the grave of his mother, Yvonne Jean, who is buried in the first cemetery. 

Christopher Hitchens was in Athens earlier this month to celebrate a death. 

A long-time supporter of the British Committee for the Reunification of the Parthenon Marbles, he believes that the group has now obliterated the British Museum’s arguments for holding onto them. 

 “The last argument the British Museum had was that ‘The Greeks have nowhere to put it’,” he said on the eve of a visit to the new Acropolis Museum.  “I’ve come here to celebrate the death of the last argument.” His celebration is due to appear in Vanity Fair.

The Parthenon Marbles - or Elgin Marbles - have been controversial since the 7^th Earl of Elgin stretched the terms of an 1802 firman from the sultan and removed to his native Scotland dozens of panels of frieze and metope. He sold them to the British state in 1816 and they became part of the British Museum collection in 1817.

The British Museum has resisted returning the sculptures on the grounds that Greece could, on the strength of that victory, ask for the return of other things. The frieze from the temple of Apollo at Bassai also sits in Bloomsbury. So does a number of exquisitely painted vases. Why shouldn’t the Greeks ask for everything back?

Papademos Receives Vote of Confidence But Disagreements Fester Inside Frail Coalition

The government of Loukas Papademos received a vote of confidence in parliament today. 255 MPs voted in favour, 38 against. Three deputies from the coalition broke with party discipline to vote against. Conservative Panos Kammenos was expelled from New Deomcracy, making him the second MP to suffer that fate in two days after Sotiris Hatzigakis. Pasok did not move to discipline Panayotis Kourouplis and Christos Katsouras.

Papademos already faces problems in releasing the 8bn euro instalment of the bailout. He asked the leaders of the three parties in his coalition to sign a letter saying they stand by the terms of the IMF and eurozone-sponsored bailout.

But the leader of the conservative New Democracy party – Antonis Samaras - is refusing to sign. Samaras’ signature is important for 2 reasons: Greece’s European creditors want his signature, because he has was in opposition to many of the country's austerity measures, saying they have made Greece’s recession worse and put people out of work. And Polls suggest he is set to become the next prime minister after elections that could take place as early as February.

The Conservative Conundrum

Conservative New Democracy leader Antonis Samaras insists that he won't sign a letter binding him to the terms of an October 26 bailout agreed in Brussels. Without that letter, says Commissioner Olli Rehn, Greece's next instalment of 8bn euro will not be released; and without that, Greece will have difficulty meeting payroll beyond December 15. So is Samaras going to be responsible for Greece going into disorderly default?

Newly installed Prime Minister Loukas Papademos put the ball very much in Samaras' court during his first parliamentary address yesterday, when he declared that Greece's written consent was the last remaining obstacle to receiving the money.

Samaras' position is understandable from a certain point of view. He expects to be elected to lead the country in February or March, or at least to the position of top party in parliament by number of seats. A recent poll by Public Issue published in Sunday's Kathimerini gives him anything between 121 and 132 seats - not enough to form a government on his own, but far above the maximum of 61seats it gives Pasok. When the next coalition talks happen, it will be Samaras and not Papandreou who will be in the driver's seat.

Samaras knows that he cannot hope for voter approval if he is the cause of a default. It is to be expected, therefore, that some kind of compromise will be reached. Samaras will have to agree to sign some bit of paper, and will publicly fuss over its precise wording. New Democracy must not appear to block the 6th instalment, nor to compromise its room for manoeuvre before it is elected.

The Bill for Incompetence Has Arrived

Having lost financial credibility and then political credibility to pull itself out of its sovereign debt mess, Greece has now lost credibility even in the media. No one seems to be sure if or when a new government will be announced.

Prime Minister George Papandreou has brought this upon himself and the country. New Democracy committed itself to talks resulting in a national unity government last Sunday. Papandreou has the parliamentary majority and constitutional prerogative of naming the next premier. Instead of leading talks, he allowed himself to be dragged through four days of postponements. He has now bid farewell three times: in a speech to parliament last Friday, in a cabinet speech last Tuesday, and in a national address last night. Such prolonged death scenes do occur in the opera, but without the notes they lower the dignity of the reluctantly departed.

The plot of this particular musical theatre suits it more to the genre of operatic farce, with suitors and jealous ministers hiding in closets and passing notes. The media, like the public, have been played like a sounding board, broadcasting the names of jumped-up hopefuls or of personalities who had no idea they were up for the job. Finance Minister Evangelos Venizelos circulated his name, and is said to have secretly approached opposition parties in a parallel negotiation to the prime minister's. Someone at Pasok party headquarters told Reuters it would be Vasilis Skouris, the Greek head of the European Court of Justice. Apparently he never received a phone call. Greek media outlets aligned with New Democracy claimed with certainty that it would be former Euro-MP Ioannis Koukiadis, a friend of conservative leader Antonis Samaras.

Greece Still Without Interim Government After Papandreou Farewell

The naming of an interim Greek government was postponed for a fourth time on Wednesday night, as Prime Minister George Papandreou and conservative opposition leader Antonis Samaras left the presidential office without an announcement. Greek media were reporting on Wednesday evening that Parliament Speaker Philippos Petsalnikos had been named to lead Greece's interim government, causing uproar in the socialist party. Talks had been ongoing throughout the day for a fourth day between the two parties.

Earlier the embattled Papandreou stepped down after leading his country through the crisis for two difficult years. The interim government that is to ratify a second bailout the country badly needs and then take the country to an election next year was supposed to be announced an hour later.

George Papandreou bid Greeks an emotional farewell after four days of gruelling negotiations with opposition conservatives on the makeup of the interim government that will succeed his. He called the new government an end to the acrimony of the past months, and said it would represent Greek solidarity to the outside world. Its aims are clear, Papandreou said – to unblock the next instalment of an existing bailout package and ratify a second, 100bn euro bailout. Without the money Greece will default in a matter of weeks. He also called on the new administration to continue structural reforms to turn the economy from austerity to development, and reverse four years of recession.
 
At 6pm local time, Papandreou delievered the following address:
 
"Today we are doing what is nationally necessary and understood. The political forces are putting their support behind the country’s next political steps. This is necessary for the country to emerge from a crisis born of the mistakes of the past and an international crisis.

Loukas Papademos Candidacy On The Ascendant

Former Bank of Greece Governor Loukas Papademos is again today considered the favourite for prime minister in discussions among Greece's political leaders. His candidacy was said eysterday to have waned in favour of Nikiforos Diamantouros, the highly regarded head of Greece's Ombudsman for a decade.

A banking source told The New Athenian that Papdemos had raised the bar on negotiations between Prime Minister George Papandreou and opposition leader Antonis Samaras by placing strict conditions on the table. Among them is a stipulation to hold elections no sooner than May, allowing the interim government time to ratify the October 27 bailout offer from Brussels, implement reforms and cement a new relationship with the Eurogroup and financial system. The banking source also said Papademos was keen on appointing Vasilis Rapanos, head of the National Bank of Greece, as finance minister in place of Evangelos Venizelos.

The coalition is designed to unite ruling socialists and opposition conservatives, whose bickering over the past months has brought the government to its knees. Conservative leader Antonis Samaras has completely abandoned his anti-austerity stance and adopted the government position that ratification of the latest bailout deal from Europe is “inevitable”. 

Earlier today the prime minister thanked the cabinet for what he called historic reforms decades overdue, and collected their resignations.