Time Running Out on Greek Debt
Business + Economy

Time Running Out on Greek Debt

Greek Prime Minister Lucas Papademos promised a debt swap would be clinched in time and dispatched senior officials to Washington on Monday to break a deadlock in talks that has prompted new fears of a disorderly default.

Athens needs a deal with the private sector, the EU and the IMF to avoid going bankrupt when 14.5 billion euros of bond redemptions fall due in late March, but talks with its creditor banks broke down without an agreement on Friday.

A representative for the creditors said Athens was not the problem in the talks, suggesting the issue lay with terms insisted on by foreign lenders keeping Greece afloat with aid.

The head of Greece's debt agency and a senior adviser were travelling on Monday to Washington to meet International Monetary Fund officials, a government source said. Athens put a brave face on the standoff.

"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," Papademos said according to a transcript of an interview with CNBC.

Under the bailout terms agreed in October, Greek privately held debt would be reduced by half so that, together with structural reforms, the overall debt to GDP ratio of Greece would fall to 120 percent in 2020 from 160 percent now.

Inspectors from the EU, the IMF and the ECB "troika" have warned they need the deal with the private sector to achieve that debt-reduction goal before they dole out more money.

Senior inspectors from the troika are due in Athens next week for talks to finalize a second, 130-billion-euro bailout agreed in October, with their team of technical experts arriving on Tuesday, a Greek government spokesman said.

"Despite the difficulties there is optimism that Greece will continue receiving funding," spokesman Pantelis Kapsis told reporters.

But time is running short. Papademos warned talks on both the debt swap and the bailout must be completed over the next two to three weeks.

"This is the objective. I think the conditions are in place in order to do so," Papademos told the broadcaster.

Uncertainty Grows

Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times an agreement in principle was needed by the end of this week if it was to be finalized in time for the March bond redemptions. He said 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," Dallara was quoted as saying. "Some of their own collaborators are not following that decision."

Negotiations stalled over the interest rate Greece will pay on new bonds it offers.

Greece, in its fifth year of recession, has continuously missed its fiscal targets, prompting speculation that the country may need further financial support to put its debt on viable footing.

The country has repeatedly flirted with bankruptcy in recent months, with only bailout loans from European partners and the IMF agreed on condition of unpopular austerity measures keeping Greece away from a default.

Papademos played down speculation that Athens would need additional aid to that agreed at a euro zone summit in October.

"I think the funds that have been pledged at the Euro Summit, combined with the outcome of the private sector involvement process should be sufficient in order to support financially the Greek economy," Papademos said.

Uncertainty over fixing Greece's debt crisis is more of a threat to Europe's stability than the downgrade on Friday of nine euro zone countries' credit ratings by Standard & Poor's, British finance minister George Osborne said on Monday.

The downgrades were largely expected and traders said pressure on Italian and Spanish bond yields on Monday were offset by the European Central bank stepping in to buy the bonds.

Bill Gross, the manager of the world's largest bond fund PIMCO, said in a Twitter post that the Standard & Poor's downgrades had made investors "aware" that countries can default and Greece would be the next example.

(Additional reporting by George Georgiopoulos and Karolina Tagaris)