Banks warn EU against forced Greek debt swap

Jan 24, 2012, 15:34 GMT

Zurich - The international banking association on Tuesday warned against an involuntary restructuring of Greek debt.

The risks of such a development have been underestimated in some quarters of the European Union, said Charles Dallara, the head of the Institute of International Finance (IIF), which has been negotiating with Greece about debt forgiveness, or so-called 'haircuts' on privately-held government bonds.

He has previously suggested in an interview on Greek television that the average interest rate of 3.8 to 4 per cent sought by private firms in the debt swap was the biggest concession that could be made.

The International Monetary Fund and major EU countries would like to see the rate pushed down to 3.5 per cent, according to media reports.

But if not enough banks take part in the swap, Greece might change the conditions for existing bond-holders, forcing debtors to accept a debt cut after all.

'I can only warn against this,' Dallara said in Zurich.

Any involuntary debt swaps could lead to drawn-out lawsuits between Athens and its lenders, and would likely raise the question why public lenders like the European Central Bank are not involved in the swaps.

The IIF made an offer to Greece last week on behalf of major banks, insurance companies and hedge funds for restructuring debts worth 100 billion euros (130 billion dollars).

Dallara called on all parties to work seriously to implement this plan, but said there was no official Greek answer to the IIF offer yet.

He said that although time was of the essence, the main goal was to achieve a voluntary debt restructuring.

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