Greek bondholders poised to accept higher losses

Financial Times
January 8, 2012

Holders of Greek bonds are set to accept higher losses as the contentious negotiations over writing down Athens’ debt burden come to a head in the next week.

People involved with the discussions about so-called private sector involvement, or PSI, said that bondholders were likely to suffer a haircut of 55-60 per cent, more than the 50 per cent originally agreed in October.

Both the IMF and Greece have argued that October’s deal should not only be maintained but also toughened while bondholders and elements of the European Central Bank have proposed watering down or even scrapping the idea.

Opponents of the scheme argue that it has come to be seen as a central cause of contagion in the eurozone crisis, with investors arguing that the precedent set by PSI, albeit conducted on a “voluntary” basis, has spooked the markets to such a degree that there is now a widespread fear that the structure could be replicated in countries such as Italy.

“There has been an increasing realisation in many quarters that this is a core evil,” said one bondholder. “It has been a transmission device of contagion into other sovereigns. So the manner of resolving is vital.”

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