FRANKFURT (MNI) – Greece may not go ahead with a debt swap of
privately held government bonds unless the vast majority of the private
sector creditors participate in the deal, according to a letter sent by
the Greek government to Eurozone finance ministers.

The letter said that Greece will not feel obliged to proceed with
the swap unless 90% of private sector investors agree to the deal, which
applies to bonds maturing between 2014 and 2020.

“Greece shall not proceed with any portion of the transaction…if
it determines, in consultation with the official sector, that the total
contribution of private sector creditors towards the financing needs of
Greece and Greece’s debt sustainability resulting from this transaction
is insufficient to permit the official sector to support the new
multi-year adjustment program for Greece announced on July 21, 2011,”
the letter warned.

Previously, the Greek government and its Eurozone partners cited
the 90% figure as a target but not as a requirement. However, there has
been much concern in recent weeks that the final scope of private sector
involvement could be far less than that.

The European Commission sought Friday to downplay those concerns.
Amadeo Tardio Altafaj, the spokesman for EU Economic and Monetary
Affairs Commissioner Olli Rehn, said talks with Greece’s private
creditors appeared to be “going well,” and “there is no reason at this
stage to think that the figures will be far from the estimate” of 90%.

“We think it is premature to speculate on the outcome when talks
are still taking place,” Altafaj added. “Talks are ongoing but they are
not closed yet.”

In addition to worries about the level of private creditor
participation, a dispute over collateral for bailout loans to Greece is
also a source of considerable stress in financial markets, which fear
the whole bailout deal could be threatened by a failure to come to grips
with that issue.

Finland struck a bilateral deal with Greece under which Athens
would make a cash deposit of E500 million as collateral against
Helsinki’s contribution to the bailout. But other countries, led by the
Netherlands and Austria, have cried foul, and the Greco-Finnish deal is
now back on the drawing board. Yields on Greek government securities
have risen sharply this week amid the controversy.

Altafaj implicitly acknowledged the problem, expressing his “hope
for clarification of all elements” of the new Greece bailout package,
“including the issue of collateral, as soon as possible.”

He added: “It is important in order to restore confidence in the
capacity of the euro area to safeguard its financial stability and to
move forward on all elements concerning the [European Financial
Stability Facility] and the second programme for Greece.”

–Frankfurt newsroom, +49-69-720-142; jtreeck@marketnews.com
–Brussels newsroom, pkoh01@gmail.com

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