“ΠΛΆΝΟ BRADY”: THE GREEK BRADY PLAN
Q. What’s this about a “greek brady plan”?
A. It’s the name given by some commentators to the deal being negotiated between Eurozone banks to roll over their Greek debt so as to defray the costs of the new bailout that Europe is putting together.
Q. What’s tHE brady plan?
A. The original Brady plan was drawn up in 1989 by then US treasury secretary Nicholas Brady. The aim was to allow American banks to get millions in Latin American sovereign loans off their balance sheets by converting them into lower-value tradeable bonds collateralised by the US government. In effect, the US was bailing out its banks’ failing Latin American loan books.
Q. So what’s THE GREEK EQUIVALENT?
A. The French deal, on which a broader Eurozone deal is likely to be based, involves setting up a special purpose vehicle (SPV) that will hold a blend of triple-A rated bonds and Greek bonds. As banks’ Greek debt matures between now and 2014, they will reinvest 70 per cent of the proceeds in the SPV, as an equity stake. For every €70 it receives, the SPV itself will use €50 to buy new 30-year Greek bonds, and €20 to buy triple-A rated bonds either from other sovereigns or from an EU bailout fund. The new Greek government bonds it buys will have an interest rate of 5.5 per cent plus additional pay-outs linked to Greek GDP growth, within limits of zero and 2.5 per cent.
Q. will this save greece?
A. It will enable the EU to claim some kind of victory in getting banks to share the cost of a new bailout and should avoid an immediate default rating, but it is unlikely that a new bailout will save Greece. The original Brady bonds were accompanied by restructuring. The Greek ones aren’t – yet.