Haircut for state bonds worth 205bil euros

The Eurogroup, which meets today in Brussels, is discussing a haircut of all Greek bonds circulating in the international market, of a total worth of 205bil euros, which will mature not only by 2020 (as was provided in the "package" of July 21) but also by 2035 (!). 

Reportedly, Venizelos remained in the Belgian capital after the end of the summit and informed the Greek bankers, with whom he had a teleconference on Monday evening. 

All possibilities are open on the size of the haircut. Venizelos claimed that Greece plays a central role in negotiations, but serves as a member of the eurozone, implying that the actual maneuvering margin is limited. 

Bankers are making their own plans based on the scenarios the minister presented to them, as with a deep cut on Greek bond prices the Greek credit system will be forced to recapitalize. 

If a haircut of 50% is ultimately selected, as France now appears to be discussing the possibility they were objecting to until yesterday, it will require the recapitalization of European banks by about 108bil euros. 

In their majority, credit institutions will be forced to resort to state aid and privatisation, as they will provide ordinary shares in return. However, in Greece’s case, where the state has financially collapsed, the money will come from the support mechanism, so the banks are threatened with being …"troikanised." 

The government, however, is seeking for the application of the July 21decisions that exempt pension funds from the haircut, otherwise a new change in the insurance system would be required, and the insured fear further cuts in their pensions. 

At present, the impact of the haircut on the Funds is incalculable, since according to officials at the labour ministry, OKA holds 26,7bil in bonds, shares and deposits. With a potential 50% haircut, losses may exceed 13bil euros. 

So, unless the Funds are excluded and supported, they will not be able to pay pensions properly. Labour ministry circles stressed that the liquidity of the Funds is not based so much on the liquidation of their reserve bonds and that these are usually recycled. Therefore, the problem can be overcome with funds from the Troika as additional support for the insurance organizations. 

For example, IKA had absorbed 93% of state funding until August and holds bonds worth 2,2bil, while 1,8bil is managed by the Bank of Greece. 

And if we add the loss of income from unemployment and recession to the losses from the haircut, then the insurance agent will be at the brink of destruction. 

According to the labour ministry, Funds have directly invested 8bil in securities of the Greek government, while some 17bil has been transferred through the "Special Fund" to the Bank of Greece and then into bonds.