EU Signals Bigger Losses for Bondholders on Greek Bailout

European governments dropped clues that bondholders may have to take bigger losses on Greek debt in a second aid package, as Greece’s deteriorating economic outlook forces bolder steps to quell the fiscal crisis.
Finance ministers considered reshaping a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro rescue. That private sector involvement, or PSI, includes debt exchanges and rollovers.
“As far as PSI is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21,” Luxembourg Prime Minister Jean-Claude Juncker told reporters early today after chairing a meeting of euro finance chiefs in Luxembourg. “These are technical revisions we are discussing.”
Together with plans to get more firepower out of the region’s 440 billion-euro rescue fund, the review of Greece’s aid package was a response to growing international frustration with Europe’s inability to get to grips with the crisis after 18 months of incremental steps. Europe’s woes contributed to last quarter’s slump in global stocks, the biggest since the aftermath of the 2008 collapse of Lehman Brothers Holdings Inc.
Juncker gave no details about a possible recalibration of the debt exchange. The talks came after seven countries including Germany, Europe’s dominant economy, weighed calling for Greek bond writedowns of as much as 50 percent, two European officials said.

Decision Postponed

The ministers also pushed back a decision on the release ofGreece’s next 8 billion-euro loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year.
“The endgame for Greece has now begun,” Sony Kapoor, managing director of policy group Re-Define Europe, said in an e-mailed note. “It seems that the ground is being laid to revisit the private sector involvement agreement reached in July.”
 http://www.bloomberg.com/news/2011-10-03/eu-signals-investors-may-have-to-take-bigger-losses-in-second-greek-rescue.html