The agreement by private sector holders of Greek government debt to take losses of 53.5 percent as part of the 130 billion euros ($172 billion) second bailout will actually see real losses of more than 70 percent, Charles Dallara, managing director of the Institute of International Finance told CNBC.
“When investors get over the net present value loss, just north of 70 percent, this will be quite attractive. The overwhelming bulk of investors that we’ve talked to have seen that the benefit of avoiding a disorderly approach benefits the balance sheets of investors around the world,” Dallara said.
Sources close to the deal told Reuters news agency that the loss could be as much as 74 percent.
Dallara insisted that the Greek bailout was a positive move despite reports that the Greek government is considering passing a law to enforce losses on bondholders who will not take part in the voluntary debt swap.
The Greek Finance Ministry presented in a statement the proposal of a bill which would introduce a collective action clause into eligible Greek-law governed bonds to be used in the implementation of the Private Sector Involvement (PSI) transaction if necessary.
The bailout deal for the debt-stricken nation is aimed at reducing Greece’s
debt burden by around 100 billion euros.
“I am quite confident that most investors will find this deal an attractive one and of a high level of participation,” Dallara told CNBC.
Dallara said that the deal remained voluntary and he had not consulted with the Greek government about implementing a collective action clause.
However almost as soon as the agreement had been announced there were already reports of critics of the bailout agreement arguing this did nothing to deal with the lack of growth in the Greek economy.
A leaked report to the press revealed reservations held by the Troika – the International Monetary Fund, European Central Bank and European Commission in their own analysis of the deal.
The report suggests that Greece will cut its debt to only 129 percent of GDP by 2020, well above the 120 percent target and would need addition financial support to do this. Some have read this to mean a third bailout cannot be ruled out.
Arnab Das, managing director of market research at Roubini Global Economics, dismissed the long-term viability of the plan to tackle Greece’s longer term economic woes. He added that the collective action clauses meant that the deal would eventually be “crammed down their throats” by Greece.
“This deal is not the end of the story. It’ll take some of the pressure off the debt payments but the economic situation in Greece will continue to be terrible. We’ll be looking at this problem again,” Das said.
James Altucher, managing director at Formula Capital was scathing in his criticism of the deal, saying that these deals and bailouts had all been seen before.
“I feel like I’m in the Twilight zone episode. Is this 2010 or 2012, who cares? We just kicked that can down the road. The reality is that Greece has been supported by its neighbours since 20 BC – we’ve anticipated this for 2000 years. The country has already defaulted, this is worse than a default,” he said.