Senior eurozone officials – including finance ministry negotiators in the “euro working group” and sherpas to all 17 presidents and prime ministers – have moved their pre-summit meeting in Brussels (originally scheduled for this evening) to 9am tomorrow, a sign they still need more time to hammer out a deal on a Greek bail-out ahead of Thursday’s much-anticipated emergency summit.
But as we reported in today’s paper, after the working group held a teleconference on Friday, the European Commission prepared a “policy options” paper outlining the possibilities they’re looking at (our worthy rivals at Reuters also got their hands on a copy).
As has become our practice, we thought we’d give Brussels Blog readers a bit more insight into what the leaked options paper had to say, after the jump.
The paper says that four options were given to staff to be hammered out and have their costs estimated. The first is described as “PSI option based on the models discussed with the IIF involving public sector credit enhancement”.
To those unfamiliar with eurozone jargon, PSI stands for “private sector involvement” — euro-speak for getting private bondholders to pay up for part of the Greek bail-out. It has long been the major sticking point in talks. The IIF is the International Institute of Finance, the global consortium of banks that has been negotiating on behalf of large institutional holders of Greek bonds.
This first option is a variation on a debt-swap option first suggested by Germany. In order to get investors to trade in their current holdings for new, longer-maturing bonds (which would give Greece some breathing room before having to pay off their debts), the IIF suggested “credit enhancements” for the new bonds they would get. This could involve getting the bonds from the eurozone’s €440bn bail-out fund, for instance.
The second option is described as “PSI option without public sector credit enhancement (e.g. the French proposal)”. This is a softer version of the German proposal, which wouldn’t have any “credit enhancements”. The original French proposal would have been more a roll-over than a swap. In other words, rather than getting bondholders to trade in their current holdings for new bonds, they would instead wait until the bonds come due – and then reinvest the proceeds in new, longer-maturing bonds.
Option three is “Low interest rate and very long maturities for the EFSF loans”, which is the most straight forward option. The EFSF is the European Financial Stability Facility, which is the formal name of the eurozone’s €440bn bail-out fund. Right now, all bail-out countries (except Ireland, for political reasons that could be the subject of another treatise) pay 2 percentage points on top of the EFSF’s borrowing costs when they get seven-year bail-out loans from the EFSF. This plan would lower those rates, and extend the maturities from seven years to as much as 30 years.
The final option is “PSI based on tax on the financial sector”, the main topic we wrote about in today’s paper. This option comes a bit out of the blue, but is attractive to many for a couple reasons. It would enable the Germans and the Dutch to say they’re getting money from the private sector to help Greece – and it would also avoid a default on Greek bonds, which is the issue that has spooked the markets and raised the ire of the European Central Bank.
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