Greece races to meet default deadline

Greece has entered its fifth consecutive year of recession, with unemployment reaching 17.7 per cent [AFP]

Greece is set to go head to head with its creditors in a renewed attempt to break a deadlock in negotiations to slash the country’s debt and stave off default.

International private sector groups, represented by the Institute of International Finance (IIF), were set to meet the
government on Wednesday afternoon.

Cash-strapped Athens needs a deal with the private sector within days to avoid going bankrupt when $18.5bn of bond redemptions fall due in late March.

Talks broke down on Friday over the interest rate Greece will offer on new bonds and a plan to enforce investor losses.

Ratcheting up pressure on hedge funds and other holders of Greek debt ahead of the talks, Lucas Papademos, the Greek prime minister, told the New York Times he will consider legislation forcing creditors to take losses on their holdings if no agreement can be reached.

Papademos said that if Greece did not receive 100 per cent participation in a programme in which bondholders would
voluntarily write down $130bn of Greece’s $450bn debt, the country would consider passing a law to require the
holdouts to take losses.

Debt exchange

The IIF said on Tuesday that Charles Dallara, its managing director and co-chairman of the private investor creditor steering committee for Greece, and Jean Lemierre, special adviser to the chairman, would resume discussions with the Greek government.

“They reiterated their commitment to seeking an agreement on a voluntary debt exchange for Greece and encouraged all parties to work in good faith toward this end with a sense of urgency,” the IIF said.

Hedge funds holding Greek bonds that mature in March may have the strongest hand.

The Greek government wants to swap out that maturing debt for new, lower-yielding bonds and a small cash payment.

But some hedge funds in London and New York that have snapped up chunks of March’s maturing bond, for around $0.40 on the euro, are balking.

A team of European Union, International Monetary Fund (IMF) and European Central Bank officials are already combing through Greece’s books as part of efforts to put together a rescue package the country needs to stay afloat.

The debt swap deal would see creditors voluntarily giving up at least 50 per cent of their promised returns.

Without it, the EU and IMF have warned they will consider that Greek debt is not back on a sustainable track and will not release further aid.

The stumbling block in the negotiations has been the low coupon, or interest payment, offered on the new bonds. It could
take investor losses well over the 50 per cent originally envisaged in the voluntary writedown.

Street anger

Many Greeks have been hit hard by the tax increases and spending cuts which were part of a first bailout agreed in 2010.
They now fear more austerity and wage cuts with the second bailout, and say they cannot take more belt-tightening.

Greece has entered its fifth consecutive year of austerity-fuelled recession, with unemployment reaching a record
high of 17.7 per cent in the third quarter of 2011. Resentment of outsiders is evident.

“We want them to get lost. They are pushing the country toward collapse with these measures. They are selling off
Greece,” said Yannis Tsalimoglou, a 51-year old dockworker, whose income has taken a 30 per cent hit with the crisis.

Thousands marched to parliament on Tuesday to protest against austerity measures, waving banners reading “EU, IMF out!”