Replies to post #234 on National Bank of Greece ADR (fka NBGGY)

[Ataglance2]

here is a good article on the topic..
ISDA

[Jester_Vandalay]

For Greece, Buyback Of Bonds Is Floated

Analysts said on Wednesday that having Greece buy back its own devalued bonds could be an important step toward solving Europe’s sovereign debt crisis.

A German government spokesman denied reports that such a plan was in the works. But if Greece bought back the bonds with help from other euro zone countries, the country would not have to repay the full amount of the debt when the bonds reached maturity.

“It’s the first time we’ve got an indication Europe is starting to think outside of the box,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland. “Ultimately, it’s the return to some kind of stable debt path that will provide the biggest turnaround in confidence,” he said.

Talk of a restructuring has been taboo among European leaders, who fear that a default by a euro country could permanently undermine the credibility of the common currency.

The latest speculation about a Greek restructuring was prompted by a report in the national weekly Die Zeit on Wednesday, as well as statements by two ministers of the Greek government who said Tuesday that extending debt repayments would be a good idea.

The Greek government denied it was in talks with private creditors to restructure its debt, Bloomberg News reported. Greek bonds already trade on open markets at a steep discount to their face value.

A spokesman for Wolfgang Schäuble, the German finance minister, said “there is nothing to” the report in Die Zeit. “We’re not working on a restructuring of Greek debt,” said the spokesman, who was not authorized to be quoted by name.

Still, analysts remained convinced that European policy makers were indeed discussing ways to reduce Greece’s overall debt.

Economists have long doubted that Greece will ever be able to repay all the money it has borrowed, especially when its economy is shrinking and the interest rate the country must pay to roll over old debt is skyrocketing.

Properly handled, a buyback could bring Greek debt down to a manageable level while avoiding the stigma of default. Unlike a default or mandatory restructuring, a buyback would be optional. Investors could still choose to hang on to their debt until it matured.

Initial market reaction was negative, however. The yield, or effective interest rate, on Greek 10-year bonds rose seven basis points to 11.36 percent, according to Bloomberg data. A basis point is a hundredth of a percentage point.

European leaders are under intense pressure to put an end to a year of market turmoil caused by investor doubts about the solvency of countries including Greece, Ireland and Portugal. Policy makers have been discussing ways to strengthen the European Financial Stability Facility, or E.F.S.F., which is the centerpiece of a 750 billion-euro ($1 trillion) rescue package for distressed euro zone countries.

So far, the fund has not impressed investors enough to calm bond markets.

Erik F. Nielsen, chief European economist at Goldman Sachs, speculated that the fund could buy discounted Greek bonds on the open market, then later resell the bonds to Greece. The fund would attach conditions to ensure that Greece continued to reform its economy and cut government spending.

“The possibility for the E.F.S.F. to start buying debt in the secondary market is indeed on the agenda,” Mr. Nielsen said in a note Wednesday.

“There are lots of remaining outstanding issues to be sorted,” he added, “but I would be surprised if it’s not included when the full package is revealed, probably in March.”

There are potential drawbacks to such a plan. It would shift Greece’s liabilities from private investors to other euro zone countries, which would then have to ensure that Greece followed through on reforms to make its economy more competitive.

Mr. Cailloux of R.B.S. said that such a plan would not be a solution for Ireland or other overly indebted countries because their bonds did not yet trade at a big enough markdown from the face value.

The plan might not work for Greece, either, if prices for its bonds rose or if there were not enough bondholders willing to sell. Still, Mr. Cailloux said, “It’s one of the more appealing proposals.” The idea shows “we’ve got a more open-minded Europe tackling the crisis.”

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