To begin with, could you please give us some background information into the state of Greece’s debt burden in 2012? The Greek financial crisis started to surface in 2009 with a loss of confidence in the officially reported statistical data by the Greek Authorities. Following early elections and a change in the government in October of 2009, the officially reported fiscal deficit was revised through a Statement by the Governor of the Bank Greece from 6%, which was the deficit communicated in August of 2009 pre-election, to “12% of the GDP or higher”. This revealed the weaknesses of the Greek statistical system and triggered an intervention of Eurostat in order to identify and fix said weaknesses, in collaboration with ELSTAT, the Greek statistical authority. Nevertheless, it also led to a loss of confidence of the markets in Greece. Suddenly, the markets closed for a member of the eurozone, an economic elite currency union which was totally unprepared for such an occurrence and was caught by surprise. The euro was at risk, as contagion for other eurozone members seemed inevitable given their exposure to the Greek sovereign debt. This led to first rescue package for Greece of €110 billion. As no stability or support mechanism existed in the EU at the time, the package was made available to Greece by certain eurozone members (€80 billion) and the IMF (€30 billion), which was invited to support the process by contributing its expertise in sovereign debt restructuring. The first rescue package came with a memorandum setting out a long list of structural changes as prior actions, aimed at helping Greece to overcome the situation. Nonetheless, it was obvious that it was a temporary and imperfect solution. In July of 2011, the heads of state of the euro area and EU institutions published a statement acknowledging the efforts made by the Greek government to stabilise public finances and reform the economy. Moreover, the statement made express the intention of eurozone members to further support Greece (with the IMF) through a new program in order to cover the financing gap, estimated at the time at €109 billion. This second program would be made available through the then newly-established rescue fund of the European Financial Stabilisation Mechanism, the European Financial Stability Fund and the European Stability Mechanism, an EU treaty institution established in the meantime in response to the crisis. On the other hand, the statement set the Private Sector Involvement (‘PSI’) as a strict conditionality to the voluntary contribution of the private sector in this burdensharing. As EU banks and insurance companies were the majority holdings of the Greek Government Bonds (‘GGBs’) in the private sector, a first proposal for the PSI was tested with them, offering four options for exchanging their GGBs with new ones that had longer maturities and implied an NPV loss of approximately 21%. Soon, however, it became apparent that this was not enough, as the macroeconomic projections had further deteriorated for Greece and its sovereign debt was on an unsustainable path. In October of 2011, the Eurogroup came out with a very comprehensive statement on Greece, stating again its support to Greece but making also clear that the PSI had a vital role in establishing the sustainability of the Greek debt, targeting a 120% debt to GDP in 2020. To achieve this, the private sector was invited to accept a voluntary GGBs exchange with a nominal discount of 50% at the beginning of 2012. By the end of 2011, the Greek sovereign debt exceeded €350 billion, €205 billion of which were held by the private sector through GGBs. This was the perimeter of the eligible GGBs invited in the PSI exchange. 16 LAWYER MONTHLY JUNE 2023 This unprecedented experience gained by our team through its participation in the PSI was applied in virtually all of the smaller or larger debt restructurings in which Koutalidis Law Firm was involved post-PSI.
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