Greece sends officials to US as default fears grow

By Martin Strydom 3:44PM GMT 16 Jan 2012

Greece has sent top officials to the US for talks with the International Monetary Fund as it returns to centre stage in the eurozone crisis over fears that a debt deal impasse with bondholders could trigger a messy default.

Women look at a shop window during the first day of the official sales season in Athens on Monday as the country teeters on the edge of default. Photo: Reuters

The Greek Prime Minister Lucas Papademos said on Monday he was confident agreement on a debt swap plan would be reached by the time eurozone finance ministers meet next Monday.

Greece has a €14.4bn bond maturing on March 20 that it can’t afford to pay in full.

A crucial second, €130bn rescue loan from the EU, IMF and ECB is dependent on reaching an agreement on a bond swap with creditors that are being asked to take a voluntary 50pc loss on their Greek government bonds.

Talks with private bondholders are said to be resuming on Wedesday after breaking up without a resolution on Friday.

"There is a little pause in these discussions. But I am confident that they will continue and we will reach an agreement that is mutually acceptable in time," Mr Papademos said in an interview with CNBC.

 

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The deal needs to be in place by the time EU, IMF, and ECB officials are to arrive in Athens next week to finalise the bailout.

If Greece does not get enough bondholders to participate in the debt deal - it needs at least 95pc - then it may have to force the rest of the creditors to stump up. This could trigger credit-default swap contracts.

Under the bailout terms agreed in October, private investors tentatively agreed to take a "50pc haircut" as part of a plan to reduce the country's debt from 160pc of GDP to 120pc in 2020.

Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times that the Greeks were not the problem.

"All the European heads of state said they wanted a deal with a 50 per cent (haircut) and a voluntary agreement," he was quoted as saying. "Some of their own collaborators are not following that decision."

Negotiations are said to have stalled over the interest rate Greece must pay on new bonds it offers. Reuters, citing a banking source, said some foreign lenders that are keeping Greece afloat with aid had sought a coupon of less than 4pc. This would have meant losses of over 75pc for some banks.

The head of Greece's debt agency and a senior adviser are reported to be travelling to Washington to meet IMF officials to help resolved the impasse.

Greece is in its fifth year of recession and in recent months had been flirting with bankruptcy, with only bailout loans from European partners and the IMF agreed on condition of unpopular austerity measures preventing a default.

Greece sends officials to US as default fears grow - Telegraph