It's crunch week in the Greek debt crisis

06/27/2011 4:05 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Three days of talking and then a vote.

I don’t expect the heights of rhetoric that Themistocles scaled to persuade the Athenians to abandon their city to the invading Persians and trust their walls of wood, but the future of the European monetary union does hang in the balance. Members of the Greek parliament are to vote on June 29 on a five-year austerity plan that the European Union, the International Monetary Fund, and the European Central Bank have demanded before they will deliver the next $17 billion payment to Greece under the original Greek rescue plan. To avoid default Greece needs $9.4 billion in August to pay off bonds that mature that month.

On the second front—the effort to put together a second rescue package that would get Greece to 2012 or 2014—a French proposal from le weekend could provide the necessary formula for a voluntary rollover of maturing Greek bonds by private investors. The German government had been adamant in pressing for bondholders to share the pain in any new rescue package, but the European Central Bank and debt rating companies pushed back so hard that German Chancellor Angela Merkel has agreed to a voluntary plan—in theory.

Working out the details hasn’t been simple. The French plan would see half the Greek debt held by banks and insurers that mature in the next three years swapped for new 30-year Greek bonds yielding about 5.5% that carried a bonus if the Greek economy expanded during that period. The money from the redemptions of another 20% of maturing bonds would be put into a special purpose fund that would serve as collateral for the new 30-year bonds.

French and German banks and insurers are biggest holders of Greek debt outside of Greece European banks hold $24 billion in Greek debt that matures by the end of 2013, according to Citigroup estimates. Greek banks hold $31 billion in bonds that mature by the end of 2013.

 

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