Greece Tries To Revive Debt Relief Deal

By Salon Staff

Published January 26, 2012 9:36AM (EST)

ATHENS, Greece (AP) — Greece's prime minister will hold new talks late Thursday with representatives of the country's private sector creditors on a debt writedown deal needed to avoid a potentially disastrous default this spring.

Lucas Papademos will meet with Charles Dallara, managing director of the Institute of International Finance, a banking lobby, and Jean Lemierre, senior adviser to the chairman of French bank BNP Paribas.

The euro100 billion ($129 billion) private debt writedown is a vital condition of a new bailout for Greece, which has been relying on international rescue loans since May 2010 to stave off bankruptcy.

The recession-plagued country is at the heart of Europe's debt crisis, and fears that it could become the first of the 17 states using the euro to default have roiled global markets over the past two years.

An IIF statement Wednesday said the goal of the talks in Athens is to agree on all outstanding legal and technical issues as soon as possible.

Papademos' interim coalition government is hoping to conclude the negotiations by the end of this week, despite disagreements over the terms of the deal, which is intended to make Greece's borrowings sustainable in the long term by lowering the debt burden to 120 percent of GDP by 2020 from 160 percent in 2011.

Under the deal, banks and other private sector investors would swap their Greek government bonds for new ones with half the face value, longer repayment deadlines and potentially lower interest rates.

Following intensive talks in Athens last week, Dallara said private bondholders had made the "maximum" offer that would ensure the bond swap is voluntary, as initially intended, warning that the alternative was a Greek default. But eurozone finance ministers later increased the stakes, urging bondholders to accept a lower interest rate — well below 4 percent on average — on the new bonds.

Key members of the IIF met in Paris Wednesday to discuss that demand.

The eurozone ministers have taken a tough stance because whatever debt relief Greece doesn't get from the investors will have to come from them and the International Monetary Fund, the country's bailout rescuers.

"To ensure debt sustainability for Greece, it is essential that a new program be supported by a combination of private sector involvement and official sector support," William Murray, an IMF spokesman, said late Wednesday.

Murray said the IMF has not asked the European Central Bank, which holds more than euro40 billion ($52 billion) in Greek government bonds, to play any specific role in relieving Greece's debt pile. The ECB, as a public sector holder of Greek debt, is protected from any writedown.

"The Fund has no view on the relative contribution of private sector involvement and official sector support in achieving" the target of cutting Greece's debt-to-GDP ratio to 120 percent, Murray said.

Salon Staff

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