Bondholders Could Lose Big In Greece Bailout Plan The resolution of the Greek debt crisis will depend, in part, on whether bondholders can be persuaded to take big losses on their holdings. At this point, it appears that most are willing to take their lumps and move on. But if enough of them balk at the settlement, it could tip Greece into default.
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Bondholders Could Lose Big In Greece Bailout Plan

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Bondholders Could Lose Big In Greece Bailout Plan

Bondholders Could Lose Big In Greece Bailout Plan

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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And if you've been wondering why attempts to fix the debt crisis in Greece seem never to end, here's a story for you. It comes on a day when Europe's finance ministers are due to vote on the latest bailout for Greece. The multibillion dollar package is needed so Greece can make payments on bonds that come due in one month. Even if the bailout is approved, it's likely to be a temporary solution, as NPR's Jim Zarroli reports in a story that begins in New York.

JIM ZARROLI, BYLINE: Hans Humes likes to ride his bicycle from his home in Brooklyn to his office at Greylock Capital Management in Manhattan. On a recent morning he showed up for our interview still carrying his bike helmet.

HANS HUMES: And I was thinking as I came in this morning, when you start getting a traffic jam if every car in the traffic jam had its priorities as the ultimate priority, you'd have a smashup pretty quickly.

ZARROLI: And he sees that as something of a metaphor for what's happening in Europe right now. Humes represents some of the big institutional investors who bought billions of dollars worth of Greek government bonds. He's been involved in debt talks before. He was part of the Argentine debt restructuring almost a decade ago.

But the Greek quagmire is much more complicated because it involves so many more parties. The International Monetary Fund, the European Union, plus all of the governments in the eurozone each with its own agenda - thus the traffic jam metaphor.

HUMES: You've got sort of 17, 18 cars driving along in the Greek restructuring. And to some extent I feel that everybody's priorities, the decision makers, are for their institution and they're kind of losing sight of what the real, you know, mission should be here.

ZARROLI: And meanwhile, he says the clock is ticking. Greece's growth rate keeps slowing making it even harder to pay off its debts.

HUMES: The problem is we're trying to adjust to this new data that's coming in, and that's a result of obviously economic activity dropping. But that in itself is a result of the fact that there hasn't been an accord, there's been no resolution to this.

ZARROLI: Under the plan now on the table, the investors represented by Humes will have to swap their bonds for new ones worth half as much. And because the new bonds will be of longer duration than the ones they now hold, they're worth even less. Bondholders could end up taking a hit of 70 percent. Some of them may decide not to go along with the deal. But they risk pushing Greece into default. And Humes says in the end they don't have a lot of leverage if Greece decides not to pay them.

Meanwhile, Germany and the IMF are demanding more budget cuts from Greece. In that traffic jam analogy, he says Germany is a tractor-trailer.

Arvind Subramanian is a senior fellow at the Peterson Institute for International Economics. He believes the different parties can ultimately reach an agreement that enables Greece to meet its March 20th deadline.

DR. ARVIND SUBRAMANIAN: I think everyone is going to try to work something out and I think something will happen. I think the bigger question is that even if they work it out, is there light at the end of the tunnel?

ZARROLI: Subramanian notes that more bond payments will be due in June. And even if Greece meets these deadlines and implements the austerity program that is being forced on it, the IMF says it will still have sky-high debt levels by 2020.

SUBRAMANIAN: It's almost inevitable there will have to be more debt relief if Greece has to come out of it. So the question is whether, you know, in the long run this is enough. And I think the answer is far from clear.

ZARROLI: But these are long-term questions. The aim right now is to come up with a bailout plan that will enable Greece to make payments on debt that comes due March 20th. If Greece can't do that it will touch off the kind of crisis the markets have been working so long to prevent.

Jim Zarroli, NPR News.


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