IMF Says Is Open To Delaying Greek Bailout Loan Repayments

Tyler Durden's picture

The soap opera begins early today (at least in the US), after the Irish Times reports that the IMF is open to delaying Greece's repayment of its international loans but believes a major restructuring of its debt would create untold problems in the euro zone, a senior IMF official said today. "Athens has made progress in tackling its debt crisis but cannot afford to relax the pace of reforms, Bob Traa, the International Monetary Fund's senior representative in Greece, told a banking conference. "If you want a debt restructuring that will really make a difference, it will need to be very large. Such a large debt restructuring would create untold problems not just in Greece, but also in the euro zone," Mr Traa said. But he did hint that the IMF was open to other solutions. "Stretching out payment terms, for instance in loans from euro area partners and the IMF, is a reasonable thing to think about because we have amortisation right at the end of the programme. This is a technical issue we can think about," he said." Unfortunately, as the rating agencies have made clear by now, such a move would be considered a technical default, and thus is unworkable as the very simple matter at the heart of the whole eurozone crisis is the forced marking of debt from mythical par levels (where the ECB has it) to market values (around half): a development which would lead to the insolvency of the ECB, something discussed minutes ago. All Europe wants is a phase transition that allows it to keep marking Greek bonds at par, and how this is achieved is irrelevant.

More from Irish Times:

Greece has already won an extension of the time it has to repay loans extended under last year's €110 billion rescue mounted by the EU and IMF.

Mr Traa did not say whether his comments referred only to Greece's official international lenders, or whether terms could also be stretched for debt held by commercial creditors.

Euro zone politicians, including German chancellor Angela Merkel, have made clear that private creditors must share some of the burden in a second rescue, which Greece agreed with the IMF, EU and European Central Bank last Friday.

The ECB strongly opposes cutting the overall value of Greek debt held privately, whereby creditors would receive less than the face value of government bonds when they matured.

However, it has signalled that it is open to the idea that creditors would agree "voluntarily" to buy new Greek bonds when old ones they hold mature, meaning that Athens would not have to produce the cash up front.

It is unclear whether private sector banks would sign up to such a deal, how much they would be prepared to contribute and whether ratings agencies would look on such a move as a default.

Economists fear that any Greek default would badly hurt banks, including those in Greece, which hold large amounts of bonds issued by the Athens government.

"The fate of the Greek sovereign and the banking system remain closely intertwined. We do not favour a sovereign restructuring scenario," Mr Traa said.

Greek banks are excluded from wholesale funding due to the country's crisis, and they rely on funding from the European Central Bank. But Mr Traa said this had to end eventually.

"The crisis has put Greek banks under a great deal of stress. The ECB's exceptional support needs to be unwound over time," he said.

Banks should increase further their capital cushions to help reduce markets' doubts.

And much more such fluff. Expect the ongoing barrage of conflicting news out of Europe in an attempt "to baffle them with bullshit" to continue.