January 18th, 2012
02:23 PM GMT
Share this on:

London (CNN) – The experts are in back in Athens to assess the damage, looking for answers to Greece's massive debt. They are part of the team to help Greece, so the country can get another dose of money from the International Monetary Fund and Europe.

But this is not the bankers who are negotiating to get less money out of Greece.

People are confusing the two teams now back in Athens. One is to clean up the mess; one is to give Greece a break on debt through so-called Private Sector Involvement (PSI) which is econ-speak for a voluntary agreement.

Let’s break them down.

The banks and hedge funds that control hundreds of billions of dollars of Greek debt have spent months working on how to ease the pain on Greece and take a "haircut" - in other words, they will "voluntarily" trade in the debt they hold for new debt worth 50% less. A bad deal? Sure. But it's better then holding paper that is worthless which it would be if Greece goes bankrupt. This is the Institute of International Finance talks that broke down on Friday and restart on Wednesday.

These talks have to be successful. They simply have to be. Greece will get a break on €103 billion of debt. It simply won’t have to pay it back. That is the trade off for the country’s painful austerity measures.

The sticking point is what rate on the coupon (interest rate) Greece will pay on the new bonds to be issued by March.

This has to be seen as voluntary and not coerced so no one thinks this is a full scale Greek default. In July of 2011 it was to be a 35% haircut, now they are talking 50% and of course it won’t be enough. Now 75% is rumored.

If these talks on 50% fail - and we will know this week either way - then the second team in Athens might as well go home.

They are the Troika (three-in-one: Forensic technocrats from the IMF, the EU and the European Central Bank) and they say if Greece has met the ongoing criteria for bailout money.

So far, they have given the green light for Greece to get some $80 billion in emergency loans to pay its bills since Europe agreed a bailout of $140 billion back in May of 2010. Six quarterly tranche payouts have gone to Greece when it appears to be cutting costs and raising taxes to meet targets.

Frankly, Greece is not really meeting those targets, but is attempting to move in that direction. A massive recession and trouble bringing in new tax revenue is making it impossible, but the alternative is default.

Now, how do the two teams relate to each other?

You’ll remember that back in October Greece was given a second bailout of around $165 billion, but the money just doesn’t get mailed to Athens. As part of this bailout, Greece was given the one-off chance to write down its debt "voluntarily" owed to the banks. That’s what the IIF is trying to hash out.

Greece needs to pay €14.4 billion on its debt by March 20th. Of course it can’t pay without a "haircut" on some, and a loan to pay the rest.

So, if enough of the banks agree to the "haircut," then Greece could force the remainder of the banks and hedge funds to go to the barber (not so voluntary, but not disorderly).

If the talks with the banks fail, the Troika has nothing to discuss. Greece will miss its painful targets and this orderly partial default (that is what it is after all) becomes disorderly.

Posted by: ,
Filed under: Business

Post a comment


CNN welcomes a lively and courteous discussion as long as you follow the Rules of Conduct set forth in our Terms of Service. Comments are not pre-screened before they post. You agree that anything you post may be used, along with your name and profile picture, in accordance with our Privacy Policy and the license you have granted pursuant to our Terms of Service.

About Business 360

CNN International's business anchors and correspondents get to grips with the issues affecting world business, and they want your questions and feedback.

Powered by WordPress.com VIP