Greece Seeks Third Debt Restructuring: Who’s on the Hook?

(Bloomberg) — Greek Prime Minister Alexis Tsipras is asking the rest of the euro area to reduce his country’s debt burden. So who’s on the hook if he succeeds?

Tsipras has already pledged to repay in full Greece’s obligations to the International Monetary Fund and the European Central Bank. He’s also said private investors won’t be asked to shoulder additional losses after taking the hit for two restructurings since the start for the European crisis.

That leaves European taxpayers in the firing line.

 Euro-region governments and the crisis-fighting fund they set up in 2010 are owed almost 195 billion euros ($221 billion) by Greece, mostly in emergency loans. That’s about 62 percent of the total debt and compares with 17 percent held by private investors.

Governments and national central banks are also contributors to the ECB and the IMF so taxpayers would be exposed should Greece go back on its pledge to make those creditors whole.

Here’s a list of frequently asked questions about Greece’s debt profile. The answers are based on the latest available data from the country’s Finance Ministry and Statistical Authority.

Q: How much does Greece owe? A: Greece’s total public debt amounted to 315.5 billion euros at the end of the third quarter.

Q: Who is Greece’s largest creditor? A: That’s the European Financial Stability Facility, the euro area’s crisis-fighting fund, which has lent the country 141.8 billion euros, and hence owns about 45 percent of its debt. The average maturity of EFSF loans to Greece is just over 32 years, with the last payment due in 2053, according to the EFSF’s website. Greece pays about 1.5 percent on those loans, comparable to what a AAA rated country would be charged, and the interest fluctuates based on the EFSF’s own borrowing costs.

Q: When is Greece scheduled to start paying principal on the EFSF loans? A: Not until 2023. It also enjoys an interest deferral on most of the loan. The exception is a 35.5 billion-euro chunk that was paid to private investors in 2012 to persuade them to accept the restructuring. Because of the grace period already in place, any writedown on the debt held by the EFSF will have relatively little impact in easing the Greece’s debt-servicing costs over the next eight years.

Q: How much of Greece’s debt trades among investors? A: After the biggest debt-restructuring in history, in which securities totaling about 200 billion euros suffered losses, Greece’s tradeable debt is now just 67.5 billion euros, 82 billion euros if treasury bills are also included. The ECB and euro-area central banks currently own about 27 billion euros of Greek bonds, according to data compiled by Bloomberg, comprising 40 percent of the total outstanding market of about 67.5 billion euros.

Q: How about the ECB? A: During 2015, Greece is set to repay 6.6 billion euros of bonds held by the ECB. By year-end the ECB would own 20.4 billion euros out of a total 60.5 billion euros of tradeable bonds, assuming no new issuances by Greece and other small bonds are repaid as they mature.

Q: Wasn’t the ECB debt already restructured once? A: Yes, albeit in an indirect way. The ECB and euro-area central banks bought Greek government bonds at the peak of the crisis at prices below their nominal value. While Greece is required to repay these bonds at their nominal value, then central banks would then return the profits they made on this transactions to their shareholders, which are euro-area member states.

The ECB has always resisted agreeing to a voluntary haircut on its debt because that would be considered monetary financing, which is banned under EU law.

Q: How does the payback work? A: These shareholders must give Greece back this profit, as long as the country complies with its bailout agreements, according to a euro area finance ministers decision taken in Nov. 2012. In this way, Greece ends up repaying less than the full amount. In 2014, Greece was scheduled to receive about 2 billion euros in ECB-profits returns. It never did, as the bailout review was never completed.

Q: Treasury bills are tradeable, how many are there? A: Almost 15 billion euros of Greece’s debt consists of short-term T-bills, which the country continuously rolls over to cover its financing needs. This covers financing needs while its bailout review remains stalled, and no aid disbursements are being made from the euro area and the IMF.

Q: How much does Greece owe to the IMF? A: Almost 25 billion euros, according to the Fund’s website. The IMF’s policy is to never restructure its loans, and Tsipras said he doesn’t intend to test the Fund’s resolve. Greece is scheduled to repay about 19.4 billion euros to the IMF by 2019, and another 6.4 billion euros between 2020 and 2024.

Q: Does Greece pay interest? A: The interest paid on IMF loans is also not fixed, and depends on the amount outstanding and the length of time since the money was advanced. The average rate varies between 3 and 4 percent, according to a person familiar with the matter.

Q: What about loans? A: In May 2010, euro-area members agreed to provide bilateral loans pooled by the European Commission, after Greece was shut off from international bond markets. The so-called Greek Loan Facility included commitments of 80 billion to be disbursed over the period May 2010 through June 2013.

This was eventually reduced by 2.7 billion when Slovakia decided not to participate and Ireland and Portugal stepped down after they requested their own rescues, according to the Commission’s website. Only 52.9 billion euros were disbursed before the GLF facility was replaced by the EFSF bailout.

Tsipras’s commitment to repay Greek loans didn’t include EFSF or GLF loans.

Q: How much could each creditor nation lose? A: A precise calculation of the potential liabilities of each member-state would have to take into account the impact of contagion from a Greek default, the consequences for European banks and the precise amount for which Greece will forsake repayment.

Q: But haven´t some made estimates? A: Some countries have done their own math. French Finance Minister Michel Sapin says his country’s exposure is 42 billion euros.

Finland, which demanded collateral for its loans to Greece, has a total liability of 5.4 billion euros, according to Finance-Ministry data and Bloomberg calculations, including the country’s contribution to the first and second bailouts and its share in the IMF loans.

The Netherlands contributed 3.2 billion euros in the first bailout loan and the Dutch guarantees on the EFSF loans and interest total 33.6 billion euros.

NOTE: These figures are approximate because a small part of Greece’s debt is denominated in currencies other than euros or in the IMF’s Special Drawing Rights. The breakdown doesn’t include some state guarantees for liabilities of government-owned entities, including public utilities, or European Investment Bank loans, which were channeled to infrastructure projects and financing of businesses.

To contact the reporter on this story: Nikos Chrysoloras in Athens atnchrysoloras@bloomberg.net

http://www.bloomberg.com/news/articles/2015-02-02/greece-seeks-third-debt-restructuring-who-s-on-the-hook-

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