Talks Between EU and IMF to Continue

The Greek government will have to wait a little longer still for its next bailout tranche. Today the talks between the EU and the IMF will continue and although some of the euro-group ministers seem to believe that the impasse will soon be resolved, they apparently have now moved their position as far as they can:

“European Central Bank executive board member Joerg Asmussen told the German Bild paper on Sunday that a write-down on Greek debt should not be part of the deal, echoing repeated statements from German Finance Minister Wolfgang Schaeuble who said it would be illegal.

"It will be touch-and-go if we get a deal on Greece on Monday," a senior euro zone official said. "Euro zone countries have made concessions worth a lot of money already, so it is difficult to see how this can move even further."

French Finance Minister Pierre Moscovici said on Sunday evening that euro zone ministers made big progress to reach a common position during at a conference call on Saturday in preparation for their talks with the IMF on Monday.

"I will go with a firm determination, with a mandate from the president and prime minister, to reach a conclusion," Moscovici said. "We are very close to a solution."

Moscovici mentioned the reduction of interest on bilateral loans, foregoing ECB profits on Greek bonds and the debt buy-back as the options that would need to be applied for a deal as well as additional financing for Athens to keep it funded until 2016, rather than only until 2014.”


(emphasis added)

The debt buyback is a neat trick – it reminds us a bit of the accounting convention by which banks can book profits on the decline in the value of their outstanding unsecured debt on the theory that they would save this money (the spread between par values and the trading value of their bonds) if they bought their own debt back in the market.

Essentially it is a method to pull a fast one on bondholders if they are desperate enough to sell at a discount. The problem is that in the Greek context there was already too much talk about this solution and the bonds have experienced a huge rally as a result.

“One of the euro zone's preferred options for cutting Greece's debt load—buying back bonds held by private investors at a discount—is in doubt after the bonds' prices rose sharply, several European officials said on Friday.

The rally in outstanding Greek bonds in recent days has made any buyback plan more expensive, eroding the impact it would have on Greece's debt. The rally raises the challenge for euro-zone finance ministers to seal a deal at their next meeting on Monday that would both plug holes in Greece's €246 billion ($317 billion) bailouts and bring the country's debt load to a more manageable level.

"The whole buyback operation depends on the price," one of the officials said. "If the price is too high it will not be done." Two other officials confirmed that the buyback has now come into question.”


(emphasis added)

Maybe they're just trying to talk the bonds down again, which certainly adds to the atmosphere of absurdity surrounding this whole farce. Who would have thought that there would ever come the time when European officials try to talk peripheral debt down

You really couldn't make this up.



Now that Greek bonds are finally rallying smartly, everybody is mortified all over again because they're going up too much….



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