Germany, France praise Greek buy-back despite cost

(ATHENS) - Germany and France signalled on Wednesday that a Greek debt buy-back passed a critical bailout test, saying it was "satisfactory" even though it will cost more than expected.

Greece's debt management agency said it had attracted offers worth 31.9 billion euros ($41.2 billion) under the scheme, which is a condition for the release of EU-IMF bailout funds needed to avert bankruptcy.

French Economy and Finance Minister Pierre Moscovici told AFP that the result was "satisfactory" and should enable the eurozone to release bailout funds on Thursday.

"Everything looks as though it went well, very well," German finance ministry spokeswoman Marianne Kothe added at a regular government news conference.

The buy-back aims to cut Greece's debt by about 20 billion euros ($26 billion) and is vital to unblock pending loans from the European Union and International Monetary Fund, which were frozen earlier this year owing to reform delays.

Moscovici said that he was "hopeful" that talks between eurozone finance ministers on Thursday would "permit the release of the aid for Greece."

He said that the Eurogroup of eurozone finance ministers had already had "positive" talks on this by telephone late on Tuesday.

Eurozone officials had previously hinted that finance ministers would give the green light for their part of the loans at the Thursday meeting in Brussels even if the buy-back were not a complete success.

The IMF and the eurozone have agreed to release 43.7 billion euros in rescue loans in four instalments to enable Greece to avoid bankruptcy provided Athens carries out the bond buyback.

Part of that money, an amount of some 34 billion euros, is urgently needed to recapitalise Greek banks which took part in a previous operation to write-down another part of the country's debt in the spring.

But to complete the procedure, Greece said it would need 11.29 billion euros ($14.7 billion) in funds from the European Union's EFSF rescue fund overall, 1.29 billion euros more than was originally allocated for the operation.

"The aggregate principal amount of EFSF notes expected to be delivered is 11.29 billion euros," the Greek debt agency said in a statement, adding that Greece had "advised its official sector creditors" over the issue.

"Approximately 31.9 billion euros...will be exchanged and transferred to (Greece) pursuant to the invitation," the agency said, adding that it had offered a weighted average price of 33.8 cents per euro to debt-holders, or 33.8 percent.

Private holders of Greek sovereign bonds originally had to submit by Friday their offers to participate in the buyback, which offered them 32.2 to 40.1 percent of the face value of the securities.

But the operation was extended to Tuesday, reportedly to achieve higher offers from Greek banks.

Greek stocks see-sawed on Wednesday, dipping in and out of the red, but bank shares were shedding 0.61 percent of their value in early afternoon trade.

The success of the buy-back is a condition for the IMF to release its part of the loan funds.

In March, Greece's private creditors had already agreed to write off about 107 billion euros' worth of Greek sovereign bonds.

But Greece's creditors and the IMF in particular remained sceptical over the mid-term sustainability of the debt given the weakened state of the Greek economy.