No Deal Yet on Greek Debt-Swap

Greece’s private creditors say time is running short.

Greece’s private creditors said time for a debt-swap deal is running out after talks between financial and government representatives in Athens failed to yield an agreement to cut the country’s borrowing load.

“A range of issues were discussed and some key areas remain unresolved,” the Institute of International Finance, which represents banks that hold Greek debt, said in an e-mailed statement today. “Discussions will continue in Athens tomorrow, but time for reaching an agreement is running short.”

Greece believes a final outline on a deal could be reached by the end of next week, a senior finance ministry official said today, with a formal public offer made at the beginning of February. He declined to be identified. The IIF has said its goal is for the swap to implemented by the end of January.

The IIF’s Charles Dallara and Jean Lemierre, co-chairs of the steering committee, met today in Athens with Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos, aiming for a deal in which creditors would write down at least half of the country’s debt in the euro area’s first large restructuring. More than two months after the accord was announced, they still need to agree on the coupon and maturity of the new bonds to determine the total losses for investors.

The deal, hammered out by European Union leaders, Greek officials and the nation’s creditors at an Oct. 26-27 summit, called for bondholders to accept a 50 percent cut in the face value of their Greek debt, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020.

The International Monetary Fund has sought a lower coupon than the range offered by investors to ensure Greece meets the deficit targets amid a worsening economy. Failure to complete the voluntary swap threatens to further undermine confidence in the EU’s leadership during the crisis, as well as deter investors from Asia and the U.S. from buying Europe’s debt.

Greek Deputy Finance Minister Filippos Sachinidis said today that Greece could need additional international funding if there isn’t full participation of private creditors in a debt swap. Analysts have said some hedge funds holding Greek debt may resist the debt swap, hoping for better returns from triggering credit-default swaps, which may harm banks.

“It’s an issue between Greece and its creditors,” who will need to reach a deal, IMF spokesman Gerry Rice said at a briefing in Washington today. “Once they come to a formal agreement, the fund will evaluate whether it’s consistent with debt sustainability targets.”

 

Merkel, Sarkozy

The IIF said “it is essential” to finalize the voluntary agreement that support be given by all official parties in the days ahead. German Chancellor Angela Merkel, who met with French President Nicolas Sarkozy earlier this week, said at the time the debt restructuring needs to be completed soon to enable Greece to receive its next tranche of aid.

“The second Greek program, including the debt restructuring, has to be carried out quickly now because otherwise it won’t be possible to pay out the next tranche for Greece,” Merkel said on Jan. 9. Greece “really has to implement the commitments made to the troika” of the IMF, the European Commission and the European Central Bank, she said.

ECB Vice-President Vitor Constancio separately today said the central bank’s view on involving private bondholders in the Greek bailout hasn’t changed, and that the central bank’s own debt holdings won’t be involved in such a swap.

“The stance is the same as what it was before,” he said at a press conference in Frankfurt today. “PSI is by definition private-sector and we aren’t involved in those negotiations.”


 

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