Allianz: Investors Should Forgive 25-30% of Greek Debt

July 18, 2011

German insurer Allianz , owner of the world’s largest bond investor Pimco, favors private investors writing off 25-30 percent of Greece’s debt, company managers were on Monday quoted as saying.

Three weeks of talks between European officials and the private sector have failed to reach a deal on how they would be involved in a second bailout of Greece, but the lobby group representing commercial banks said on Sunday that some progress had been made.

Banking sector sources told Reuters last week that “haircuts” of 30-50 percent on their holdings of Greek government debt had been discussed.

But the talks continue to struggle to overcome legal and political obstacles which centre around efforts to avoid a Greek default or deal with opposition from the European Central Bank to any such default.

Allianz Chief Financial Officer Paul Achleitner told the Financial Times Deutschland any deal would have to be on a voluntary basis — a solution aimed at avoiding a default.

“For example, the country (Greece) could offer to exchange old bonds with a nominal value of 100 for new ones worth 70,” he said comments to another German paper, Die Welt. “That way they would achieve a voluntary de facto debt reduction of 30 while at the same extending the maturity.”

A third newspaper, Handelsblatt, cited a paper from Allianz as backing a 25 percent haircut.

Insurers have to date said little publicly on the efforts to involve the private sector in resolving Greece’s debt problems, but they are among the biggest holders of its debt.

Allianz held some 1.3 billion euros ($1.84 billion) in Greek debt as of the end of 2010.

Handelsblatt, reported Achleitner as saying a haircut of 25 percent would reduce Greek debt by 50 billion euros to less than 300 billion.

To guarantee the bonds, Greece would take out a loan from the European Financial Stability Facility (EFSF) and put that money in a trust, Achleitner said, reiterating proposals made earlier by Allianz.

As any new bonds would be less risky they would have an interest rate of 5 to 6 percent, he added.

Pressure for a buy-back or a swap of Greek debt mounted over the weekend as German Chancellor Angela Merkel reiterated her call for private investors to make a major contribution to bailing out Greece.

Euro zone leaders plan to hold a summit in Brussels on Thursday to agree on a second Greek bailout.

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