Greece: Eurozone Won't Add Cash If Bond Talks Fail

By Salon Staff

Published January 19, 2012 12:27PM (EST)

ATHENS, Greece (AP) — Eurozone countries will not increase their financial support to Greece if it fails to secure a bond-swap deal with private creditors, thereby renewing the threat of the country not being able to pay its debts, Finance Minister Evangelos Venizelos warned Thursday.

Venizelos's remarks came hours before the minister was to hold a second day of talks with banking negotiators to reach a deal, known as the Private Sector Involvement, aimed a slashing the country's national debt by euro100 billion.

"If there is a (financing) gap, this would have to be covered by a larger contribution from the official sector — that means the eurozone countries, directly or indirectly. And at this point, I do not see any willingness or readiness to increase that contribution," Venizelos told parliament.

"So there must be no gap, and the Private Sector Involvement is very important."

Greece is facing a renewed threat of defaulting on its debts, with euro14.5 billion repayment looming on March 20 and no available funds to cover that amount.

A default, the finance minister warned, would inevitably lead to Greece's exit from the 17-nation eurozone.

"Bankruptcy would of course mean our exit from the euro, because we would not be able to withstand staying in, being unable to finance our needs without a readjusted budget and producing primary surplus."

Venizelos and Prime Minister Lucas Papademos are scheduled to continue negotiations later Thursday with Charles Dallara, a top official at the Institute of International Finance who is representing private debt holders.

Those negotiations, which had been suspended last week, resumed on Wednesday in the hope of reaching agreement with private holders to cancel 50 percent of their Greek debt in exchange for a cash payment and new bonds with longer maturities.

Dallara and Greek officials said they are hopeful an agreement could be reached on the interest rate of the new bonds, a key sticking point.

"The interest rate on the new loans is a key issue here," Dallara told CNN Wednesday. "I would not say that I'm confident but I am hopeful that we can reach agreement."

The bond-swap negotiations are part of a second bailout deal worth euro130 billion, agreed between Greece and eurozone countries in addition to euro110 billion in rescue loans since May 2010 from the eurozone and International Monetary Fund.

Senior members of the EU-IMF debt inspection team — known as the "troika" — are due in Athens Friday to negotiate additional terms for the second bailout and monitor progress in Athens on its pledge to slash deficits though harsh austerity measures.

Prime Minister Papademos is to meet the leaders of political parties backing his two-month-old coalition government to discuss the debt talks and troika visit.

Also Thursday, parliament is set to approve a series of new austerity measures demanding by the debt inspectors, including provisions to speed up licensing liberalization of various professions and easier payment schemes to help businesses settle mounting tax debts.

The Papademos government is backed by the majority Socialist party, as well as main opposition conservatives and a small right-wing party.

Salon Staff

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