Greece finance minister warns against default

Papademos (left), and Venizelos are leading the talks with Greece’s creditors [Reuters]

Eurozone countries will not increase their financial support to Greece if it fails to secure a deal with private creditors, Greece’s finance minister said, as political leaders remained locked in talks with banking negotiators for a second day.

Evangelos Venizelos and Lucas Papademos, Greece’s prime minister, are seeking to persuade creditors to accept a deal that would see $100bn written off the country’s national debt as part of a rescue package to save the faltering Greek economy from bankruptcy.

“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 the Greek parliament.

Greece is facing a renewed threat of defaulting on its debts, with $14.5bn 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.”

Negotiations between Greek leaders and the country’s creditors, represented by Charles Dallara, a top official at the Institute of International Finance, resumed on Wednesday after being suspended last week.

Shares on the Athens stock exchange leapt in afternoon trading on Thursday amid hope that the government would reach a deal with private creditors.

The main Athex index gained 4.3 per cent to 698.87 points in afternoon tading amid media reports that Greek officials were optimistic they would strike an agreement with banks and institutional investors.

Raising expectations even further, Venizelos told lawmakers that the International Monetary Fund had approved separate talks on additional funding.

“After a waiting period of several weeks, the green light has been given for the country to submit to the IMF a request to begin procedures for the new programme” of financing from public sources, Venizelos said.

50 per cent writedown

Greek officials hope private holders of Greek bonds will agree to cancel 50 per cent of their Greek debt in exchange for a cash payment and new bonds with longer maturities.

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

The bond-swap negotiations are part of a second bailout deal worth $130bn, agreed between Greece and eurozone countries in addition to $110bn 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.

Parliament was expected to approve a series of new austerity measures on Thursday, while Papademos was due to meet the leaders of political parties backing his two-month-old coalition government to discuss the debt talks and troika visit.

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

The eurozone cleared another major funding test on Thursday when Spain romped through a key bond sale, while signs pointed to only a mild recession for the 17-nation bloc.

Spain’s auction of benchmark 10-year bonds was a major test of investor appetite in the peripheral eurozone country.

Short-term auctions last week had been successful but Thursday’s sale was for longer-dated bonds.

It raised more than forecast at 3bn euros, at a yield of 5.403 per cent, a drop of more than 1.5 percentage points since the same bond was last sold in November.