IIF Offers New Deal to Euro Zone Leaders over Greece's Debt

Charles Dallara, Director of the Institute of International Finance (IIF), speaks during a meeting of the IIF institue in Cancun, Mexico, 21 March 2010. EPA/BGNES

International banks have made a new deal to euro zone governments over the Greek debt crisis in an attempt to reach an agreement about the losses of the holders of Greek debt, the Institute of International Finance said.

Banks have put forward a "significant" new proposal to break the deadlock over how deep the losses should be, according to the IIF, as cited by Dow Jones and The Wall Street Journal.

"I can confirm that a significant new offer was made by Mr. Charles Dallara, IIF Managing Director, on behalf of private investors in discussions yesterday," said a spokesman for the IIF on Wednesday. "The offer was for a debt exchange on a voluntary basis in support of Greece. I am not able to elaborate at this point."

Earlier, a bank source who would also not detail the parameters of the proposal, said the banks are awaiting reaction from euro-zone governments and Greece.

The person said the proposal contained a higher discount rate than the 9% agreed on a July 21 deal for Greece agreed by euro-zone leaders. The increase, which reflects the deterioration in Greek bond prices since July, would reduce the impact of any given headline reduction in net present value (NPV). The July 21 deal called for a 21% NPV cut.

The IIF has been insisting that any deal is voluntary, arguing that if the reduction in the value of private bond holdings resulting from any bond exchange exceeds about 40% that would be impossible.

Euro-zone governments have been seeking a 50-60% reduction in the value of the bond holdings.

A day earlier, on Tuesday, Charles Dallara, head of international banking lobby group, the Institute of International Finance (IIF), spoke unenthusiastically about the euro zone push to get the private sector to share the burden on Greece's debt.

Dallara warned Monday that a non-voluntary deal on the private sector contribution to Greece's debt would cause "severe contagion" effects that would hit European growth and jobs.

Reacting to the weekend decision by the euro zone to push for a "higher private sector haircut on Greek debt", Dallara said there are "limits" to what can be considered a voluntary agreement.

EU 27 and Euro Group leaders are meeting in Brussels Wednesday night for an emergency sitting of the European Council on the Greek debt crisis and the expansion of the European safety net, the EFSF, which is supposed to provide a buffer to cushion potential debt crises with larger EU economies such as Spain or Italy.

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