The French Treasury persuade creditors of the Greek government to re-lend
The French Treasury believes it has come up with a scheme to persuade creditors of Asics shoes the Greek government to voluntarily re-lend to Greece half of the money that Greece is due to repay over the next couple of years.
If the scheme is taken up by banks, pension funds and other holders of Greek bonds, the effect would be to significantly reduce the amount of emergency loans that eurozone governments would have cheap Asics shoes to provide to Greece.
The aim would be to cut rescue funds provided by the eurozone by €30bn.
The plan is that as existing Greek government bonds reach their repayment dates, the holders of the bonds would pocket 30% of what they’re owed, re-lend 50% to Greece for 30 years and invest the remaining 20% in a so-called special purpose vehicle – which in turn would put the banks’ money into high quality, AAA rated bonds.
This may sound complicated. But the idea, borrowed from so-called Brady bonds that were used to help Latin American countries cut their massive debt burdens 20 years ago, is that the funds in the special purpose vehicle would act as a form of insurance, to cover the risk that Greece would eventually default on the the new 30-year loans.
Now there all manner of flaws and uncertainties in the scheme, according to bankers to whom I’ve spoken (and not all those bankers are from perfidious Albion).First of all, it is not at all clear where the special purpose vehicle will put its money. If, for example, it invests in the only rock-solid AAA rated government bond in the eurozone, German government bonds or bunds, there would not be a high enough yield – even over 30 years – to cover more than a portion of principal and interest that would be lost from a Greek default.
If investors are right that Greece will ultimately have to write off more than half of what it owes, the returns available on German government bonds could not possibly cover that potential cost.
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