The Greek government has hardened its demands of private investors, saying that it might not go ahead with bond swaps crucial to the success of the bailout agreement if fewer than 90% of investors participate.In a statement (pdf), Greek Finance Minister Evangelos Venizelos made clear that “voluntary” private sector participation was crucial to the plan and asked foreign finance ministers to compile data on outstanding Greek securities held by financial institutions in their countries.
According to a Reuters report, 60 to 70% of bondholders have already signaled that they will participate in the bailout, and more are likely to do so. However, the 90% threshold — previously considered a target rather than a requirement — might still be too optimistic.
The statement does not come as too much of a surprise. While it gives the Greek government some freedom to act in its best interests, it also suggests bondholders make a choice between a true default and a haircut. Greece is banking on the fact they will choose the latter.
Here’s the notable piece of the statement:
“Greece shall not be obliged to proceed with any portion of the transaction described in this
letter unless holders of eligible GGBs tender, in response to Greece’s eventual Invitation to
Tender, eligible GGBs having a principal amount equal to not less than 90% of all eligible
GGBs, including 90% of that portion of the eligible GGBs maturing during the period from
June 30, 2011 through August 31, 2014. If these thresholds (or either of them) are not met,
Greece shall not proceed with any portion of the transaction described in this letter if it
determines, in consultation with the official sector, that the total contribution of private sector
creditors towards the financing needs of Greece and Greece’s debt sustainability resulting
from this transaction is insufficient to permit the official sector to support the new multi-year
adjustment program for Greece announced on July 21, 2011.”