‘Progress’ made in Greece debt talks

Private bond holders are being asked to forgive half their Greek debt, and in return accept cash payments [AFP]

Greece and its private creditors have made progress in talks to try and overcome obstacles to a major debt-relief deal needed to avoid bankruptcy, sources from both sides say.

Lucas Papademos, the Greek prime minister, held a two-hour meeting 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, on Thursday.

Both sides said they will continue negotiating on Friday with the aim of sealing an agreement within a few days.

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Ollie Rehn, the European economic affairs chief, said a deal on reducing Greece’s private sector debt is imminent and should be completed by the end of January at the latest.

“We are very close to a deal. If not today then over the
weekend and preferably in January, not February. We are very
close,” he said at the World Economic Forum in Davos, Switzerland, on Friday.

The deal is required for a second international bailout with a looming $19bn bond repayment on March 20 that carries a serious threat of bankruptcy for Greece.

Greece is currently surviving on a $156bn loan package from eurozone countries and the International Monetary Fund, and has been promised an additional $169bn in rescue aid if the bond-swap deal goes through.

Private bond holders are being asked to forgive half their Greek debt, and in return accept cash payments and new bonds with longer maturities.

On the other hand Greece’s creditors are demanding that the European Central Bank, with roughly 40bn euros worth of Greek bonds, contributes to a deal to put the country’s messy finances back on track.

Germany does not expect Greece to default on its debts, Finance Minister Wolfgang Schaeuble told the Davos forum, but he warned its debt level should not exceed 120 per cent of GDP.

“We don’t expect a default of Greece,” he said. “I know that most participants have for a long time, but I don’t expect a default from Greece. I’m sure that everybody is ready to deliver what has been agreed.”

Little progress on reforms

Against this backdrop, Jean-Claude Juncker, the Eurogroup head, has told a newspaper that “eurozone members may have to increase their financial support for Greece if Athens and the private sector do their part to address the country’s debt crisis”.

A senior Greek government official said, despite delays in concluding the negotiations, Greece was still aiming to submit its formal offer for the bond-swap deal to banks and other private creditors by February 13.

“The talks focused on legal and technical issues and progress was made. They will continue on Friday and probably on Saturday too,” a senior Greek government official told Reuters news agency on condition of anonymity.

The Institute of International Finance, which leads talks on behalf of creditors, similarly cited progress and said work would continue Friday.

Meanwhile, EU-IMF debt inspectors are currently in Athens for talks with the Papademos government, to set conditions for the second package that are expected to produce more austerity measures in the recession-hit country.

Greece has made little progress on reforms as it passes through its worst post-World War II economic crisis. The task facing the country has been made harder with anger against austerity measures and squabbling politicians running high.

A poll on Thursday showed Greece’s conservatives had widened their lead over socialist coalition partners in the run-up to elections expected in April.