Holders of Greek bonds will suffer a larger ‘hair cut’ than that experienced by Argentine creditors forecasts Argentina’s former Finance Secretary Guillermo Nielsen who played a crucial role in negotiations with creditors following the 2002 default.
Argentina restructured its defaulted sovereign debt in 2005 with cuts ranging up to 75% of face value, a long process that has yet to be finished since there is still a minimum percentage of hold outs that have refused to accept Argentina’s terms.
Nielsen who has been advisor to the Bank of England and Argentine ambassador in Berlin said that Athens has no other option but to accept losses and pay the price for 18 months of European authorities’ hesitation in adopting a firm course of action.
“Unfortunately the disappointing management form the very beginning leaves no option. The hair cuts for Greek sovereign bond holders is certainly going to be far greater”, forecasted Nielsen.
“They thought ‘we’re Europe, we’re not Argentina, we’re not going to need re-structuring’ and look where they stand now. They’ve been pouring money for nothing”, added Nielsen, who nevertheless said it was not feasible that Greece abandons the Euro and returns to the Drachma.
But “delaying re-structuring until 2013, as has been mentioned, would be a great, great mistake”, insisted Nielsen.
In related news the German Finance ministry advanced on Sunday some details of a new aid package model for Greece that would include the voluntary participation of private sovereign bond holders.
According to a piece published in Welt am Sonntag, bond holders maturing between 2012 and 2014 would be asked to exchange them for seven year bonds.
The purpose of the possible restructuring is to avoid a “Greek default” and bond holders would be motivated to accept the exchange based on the ‘collective action’ clause, which would be introduced in existing bonds’ contracts in case few investors were willing to participate.