Greece sees a buyback of Greek bonds by a euro zone bailout scheme and private sector involvement (PSI) in exchanging bonds as the two most likely solutions to its crisis, Greek newspapers reported today.
Citing anonymous government sources, newspapers Ethnos, Eleftherotypia and Eleftheros Typos said that the government was focusing on these options following a meeting of prime minister George Papandreou with some of his most senior ministers.
One of the most likely options in the eyes of the Greek government is using the European Financial Stability Facility (EFSF) to buy back bonds worth €15 to €40 billion at a discount of 30 per cent, Eleftherotypia and Eleftheros Typos said.
The Greek government estimates that this would reduce its debt burden by at least 20 per cent without creating complications with credit rating agencies, they added.
The second most likely option from the Greek government's point of view is the German proposal of exchanging Greek bonds with new Greek sovereign paper of longer maturities and lower interest rates, a move that would require PSI and lead to a selective default being called by credit rating agencies, the newspapers added.
The Greek finance ministry declined to comment. Euro zone officials have rattled markets by struggling to reach a deal on how to involve private sector investors in tackling Greece's debt mountain, a key demand of Germany before it signs off on more support for Athens.
Spain's economy minister Elena Salgado said euro zone countries must take quick action to resolve Greece's debt crisis to prevent contagion from spreading through the currency union.
Speaking in an interview published in German newspaper Sueddeutsche Zeitung today, Ms Salgado said countries that share the euro would do all that was needed to guarantee the currency's stability, but that fast leadership was required.
"The markets attack all countries that have low growth or high debt, like Italy or Belgium," she said. "Therefore an answer must be quick, determined, and clear."
Euro zone officials have struggled even to set a date for leaders to meet to agree a way forward on the debt crisis, raising fears financial markets might exploit a policy vacuum with a new onslaught on the bloc's high debtors.
An impasse on how and when to grant the country urgent aid remains, although a new sense of urgency may now drive leaders to push for a solution after markets started to focus attention on Spain and Italy.
Most policymakers and the European Central Bank agree a Greek default should be avoided, a positioned echoed by Ms Salgado in the interview, although some countries have acknowledged that a selective default may be needed to untie the knot.
"Everything must be done to prevent such a thing. A default, that is a default of the bonds, would be bad news, especially for Greece," Ms Salgado said.
Reuters