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Greece launches debt buyback as Spain bank cash agreed

by Roddy Thomson
Piles of garbage outside a bank branch in Thessaloniki. Greece launched an operation to buy back privately-held debt at a big discount, with eurozone finance ministers in Brussels studying the terms on offer alongside plans to bail out Cyprus too.

Greece launched Monday its bid to buy back privately held debt at a big discount, freeing eurozone finance ministers to nod through 39.5 billion euros ($51.3 billion) to recapitalise Spain's banks next week.

Eurogroup chairman Jean-Claude Juncker also announced he would step down come year-end, although his successor remains far from clear, with France long resisting moves to hand the post to German Finance Minister Wolfgang Schaeuble.

At talks in Brussels, the Eurogroup refused to comment on results from day one of the Greek buyback operation, but gave a guarded welcome to preliminary bailout plans drawn up for Cyprus, expected to amount to 17 billion euros.

The debt buyback is the underlying condition for Greece to receive a crucial 43.7-billion-euro installment of bailout funds from the European Union and International Monetary Fund.

Aimed at slashing the country's crushing debt load by some 20 billion euros, according to analysts, the buyback is only one of a string of measures agreed last week, with ministers displaying confidence that the scheme would work.

Asked if he believed the programme would deliver by a deadline of December 13 to assess take-up by mainly Greek financial institutions, Luxembourg's Luc Frieden said: "I assume so."

He did add though: "I dont know of any Plan B" if the buyback plan should fall short.

"I'm not especially worried, I believe the sums have been done in a realistic manner," said French Finance Minister Pierre Moscovici.

Greece's national debt agency PDMA said it would offer to buy sovereign debt back from private investors on a voluntary basis.

The buyback concerns Greek sovereign bonds with a face value of 62.3 billion euros, with participants to receive between 32 and 40 percent of the bond's face value in the form of six-month bills issued by the EU's temporary rescue fund, the EFSF.

Amid ongoing grim economic prospects for Greece, private creditors had already agreed to write off about 107 billion euros' worth of Greek sovereign bonds in March.

Creditors hope Greece's debt can be brought back to 124 percent of gross domestic product by 2020, from an expected 190 percent next year.

The IMF has indicated that it wants to wait until a successful buyback takes place before releasing its portion of the rescue loans.

The next Eurogroup meeting on December 13 is intended to clear payments Athens needs to avoid bankruptcy, with Cyprus probably needing until further talks on January 21 for meaningful progress.

Preparations for Spain to recapitalise its banks using eurozone loans were waved through as expected.

"We authorised the first disbursement programme of up to 39.5 billion" euros, which will happen "next week," said Juncker.

On Tuesday, when the eurozone ministers are joined by their peers from the other 10 EU members, they are set to talk about policing the banking sector more effectively, but only gradually from September 2013.

Proposed new safeguards are part of wider moves towards fuller economic and political integration deemed necessary to break the vicious circle between government and bank debt that has brought the European economy to a standstill.

But draft frameworks for the new regime with the European Central Bank at its apex have met with opposition, particularly in the non-euro global financial centre of the City of London.

Tensions have increased not least because the British government in London believes German banks -- especially smaller ones -- should be subjected to more stringent checks than would be likely under an emerging compromise.

"I hope, for all I am not certain, that we will be able to reach a common position," said Schaeuble on arrival for the evening talks, which wrapped up early compared to a string of late nights in recent weeks.

A key subject involves voting rights in cases where disputes arise between the ECB and the London-based European Banking Authority, itself a recent creation meant to coordinate action by national watchdogs including those from non-euro countries.