The restructuring of the Greek sovereign debt that took place in 2011-2012 is still relevant, critical and active. International financial institutions and markets consider our debt to be sustainable, and the – drastically reduced after 2012 – annual debt service costs, which are only comprised of interest and no amortisation until 2032 due to the grace period make it feasible to meet the annual targets in terms of both fiscal and primary deficit/surplus. This demands the necessary fiscal awareness and sufficient domestic political will, though.
The complex operation that led to the restructuring of the Greek sovereign debt certainly continues to arouse international interest and hopefully domestic interest will be maintained or rekindled, primarily for national security reasons, since fiscal stability is a critical parameter of national power.
Charles Dallara was the representative of the international banking sector, along with Jean Lemierre, chairman of BNP Paribas. I started negotiating with him in July 2011, in my capacity as Vice President and Finance Minister of the G. Papandreou government. We continued our negotiations after November 2011, as I retained the same capacity in the coalition government (PASOK, ND and initially LAOS) of then Prime Minister Loukas Papademos.
Charles Dallara has written an imposing 560-page book, the title of which (Euroshock) sets the tone, while its subtitle (How the Largest Debt Restructuring in History Helped Save Greece and Preserve the Eurozone) describes the magnitude and criticality of the project, as assessed, twelve years later, by an insider who lived through the events in question. The author places the restructuring in its historical, financial and institutional context, providing information on crucial moments and people, but also adding his own analyses on the functioning of the EU, the Eurozone, the IMF, the major European governments (especially the German and French ones), the US administration and, of course, the Greek government and political system while under high pressure and in view of existential and historical stakes.
The author, an American cosmopolitan with a sense of European history, is familiar with Greece since 1972, he served as an official in the US Department of the Treasury (USDT) and was also the U.S. Executive Director at the IMF. As managing director of the Institute of International Finance (IIF) he undertook to manage the way in which the international private sector and especially banks would participate in the voluntary exchange of Greek government bonds held by private individuals (Private Sector Involvement / PSI) with new “post-PSI” bonds of a nominal value of 31.5% of the old ones, with an additional immediate payment of 15% of the nominal value of the old bonds in cash equivalent – i.e. with a haircut of 53.5%. EUR 205.5 bn bondholders were invited, while EUR 198 bn bondholders participated (96%). The haircut reached the amount of EUR 106 bn.
Charles Dallara narration describes in an accurate, documented and fascinating way an enormous operation organised by the Hellenic Republic with the financial and political support of its partners, but with its own legal, financial and historical responsibility. If the bondholders’ collective action clause (CAC) had not been retroactively introduced in Greek legislation and if the activation of the credit default swaps (CDS) had not been controlled and without wider consequences, the restructuring would not have taken place and the country would have been in a state of disorderly default and practically out of Europe. This is a multi-layered thriller, the suspense of which was experienced by very few people, among whom my two closest collaborators at that difficult time, George Zanias and Petros Christodoulou need to be mentioned.
Charles Dallara is an internationally respected figure in the financial sector and has become a reference person in the economic history of our country and the eurozone. There are of course the political aspects of the Greek debt restructuring that the author did not experience as a representative of the private sector. The starting point is my base agreement with Wolfgang Schaeuble in Berlin in early July 2011, which he himself mentions in his memoirs, published a few days ago. What we agreed upon there, for an initial announcement of a 21% “haircut” with a final target “haircut” of 50%, was respected and implemented, even though we went through hell and high water with the announcement of the 2011 referendum, the Cannes summit, the formation of the coalition government, the populist campaign against us, the distrust of a large part of the public. I refer to these in “Ekdoches Polemou 2009-2022” (Versions of War 2009-2022) (Patakis, 2022).
Furthermore, we, just like our European partners and the markets, know very well that the PSI is one of the two pillars of restructuring, the second and even more important pillar is the Official Sector Involvement (OSI), which reduced the present value of the debt by 49% of GDP in 2013 and continues to produce positive results through the drastic reduction of the average interest rate , the drastic extension of the average maturity, the grace period until 2032, the return to Greece of the profits of the European central banks from the Greek bonds in their portfolios (SMP and ANFA) and most importantly through the conversion of Greek debt into a hybrid debt, with 75% of it resting, even now, outside the markets, in the friendly hands of our institutional partners and creditors. These are parameters more critical than the debt-to-GDP ratio which is increasing in nominal terms and due to inflation.
Charles Dallara dedicates his iconic book to the grandest and -as it turned out- absolutely legally safe debt restructuring that took place within a monetary zone and not in a monetarily independent country. This is because he knows the importance for the Eurozone and the international economy of the “Test Laboratory of Greece”, which operated during the dark period of the crisis, fortunately leaving the country standing institutionally and economically, but obviously wounded. It is always useful when foreign friends who are familiar with Greek affairs record and share their experience with us and the international public. Nevertheless, it would be even more useful if we were to “self-assess” our historical experience and turn it into awareness and insight for the future.
*Evangelos Venizelos was Deputy Prime Minister and Minister of Finance 2011-2012 and Deputy Prime Minister and Minister of Foreign Affairs 2013-2015.
