Greece on Friday offered cash to facilitate a deal in which J.P Morgan would buy back a structured bond at the heart of a scandal rocking the government from state pension funds.
The deal fell apart on Thursday, after J.P Morgan refused to pay funds interest they claimed they could have earned on the money invested in the bond, had they deposited it with the central bank.
"For the buyback of the 280 million euro bond there is disagreement between pension funds and the bank (J.P Morgan) on the interest earned during the period the funds held the bond," the Labour Ministry said in a statement. "Greece will cover the difference in case the two sides reach an agreement."
Some pension funds welcomed the move, saying they would now accept J.P Morgan's proposal. The bank issued a statement saying it was reopening its offer until 1600 GMT, adding that this deadline was final. "This very much facilitates the issue, a resolution, because I foresee our board meeting accepting J.P Morgan's proposal after this, as it will mean our fund will not suffer damages," said Constantinos Christidis, president of the TEAPOKA fund representing pension fund employees.
The labour ministry said the government would pass legislation allowing it to pay the funds interest money earns in deposits with the Bank of Greece, a move that angered the socialist opposition.
"The buy-back cannot be done at the expense of taxpayers, by having the state pay for the interest," opposition PASOK party deputy Vasso Papandreou told Reuters. Analysts said the move, estimated to cost taxpayers about 3.5 million euros, was apparently aimed at minimising the political fallout from the scandal, which has prompted the sacking of a minister and the suspension of two brokerages. With snap elections looming, possibly as early as autumn, the government is eager to close the issue, they said.
"This is clearly a political move to find a solution. The government wants a deal between pension funds and J.P Morgan in order to quiet down public opinion during a pre-election period," an analysts at a major Greek bank said.
Opinion polls show the government's popularity has suffered as a result of the scandal, which has been making headlines for months. A public prosecutor is investigating claims by ministers that the bond was sold to state pension funds at too high a price but no charges have been pressed.
The 12-year bond with an initial coupon of 6.25 percent was underwritten by J.P Morgan in February. It changed hands several times before ending up with state pension funds. Last month, J.P Morgan and London-based brokerage North Asset Management agreed to buy back the structured government paper. But on Thursday the bank said pension funds turned down its offer to buy it back at the price at which it was sold.
The government has also moved to revamp the regulatory framework of how pension funds invest their money, limiting investments in structured bonds to 2 percent of their assets. Greece's main 80 funds manage about 30 billion euros.