Greece once again appears on the verge of reaching a deal with its private sector creditors on how much of a loss they would be willing to accept on their bond holdings.
The latest progress comes in the wake of two days of talks in Athens between Greece?s political leadership and Charles Dallara of the Institute of International Finance, the bankers? lobby representing most investors.
Bankers and officials involved in the discussions who were not authorized to speak publicly say that bondholders have made significant concessions with regard to the interest rate, or coupon, that the new Greek bonds would carry. Having insisted previously on an average rate above 4 percent, creditors now seem willing to accept a rate below 4 percent for the 30-year bonds ? perhaps as low as 3.6 percent.
The discussions were expected to continue through the weekend, and officials said some type of announcement could come within days.
The talks with private creditors have broken down twice before, largely because the International Monetary Fund and European leaders have pushed for a larger debt reduction in light of Greece?s worsening economic outlook, so there is the possibility that these negotiations will founder, too.
Technical talks are continuing with regard to a lump-sum payment of some sort that may be included in later years if the Greek economy improves.
On top of the 50 percent nominal loss, or haircut, already agreed, the lower coupon would produce a total loss for bondholders of more than 70 percent.
It is a tense time for Greece. Officials from the three institutions that are keeping the near-bankrupt nation financially afloat ? the European Commission, the monetary fund and the European Central Bank ? are demanding another round of spending cuts and reforms to justify a release of as much as 30 billion euros ($39 billion) in the months ahead.
A private sector debt deal is seen as a strict condition to Greece?s securing its next bailout installment.
Officials expect that the deeper bond loss will allow Greece to meet its goal of having a debt-to-gross-domestic-product ratio of 120 percent by 2020, a significant drop from the current ratio of 160 percent.
The recent collapse of the economy has made it more difficult for Greece to hit this number.
Though a debt agreement may spur Greece?s next bailout installment, the deeper loss being inflicted on bondholders carries the risk that many investors, in particular hedge funds that in recent months have loaded up on cheap Greek bonds in hopes of a payday this March, will refuse to participate in the deal.
Greece will try to impose the terms on all investors by writing collective-action clauses into the contracts of its old bonds. By doing this, the hope is that the holdouts, estimated to sit on 10 percent to 15 percent of the 206 billion euros ($272 billion) in outstanding securities, will exchange their old bonds for new bonds ? preferring the new discounted bonds to their old ones, which may become worthless.
Some hedge funds that have bought at rock-bottom prices may decide to pursue legal action, although such a process could take years with small certainty of success.
Also undecided is what the European Central Bank, which owns 55 billion euros of Greek bonds, will do. Despite public pressure that it, along with investors, accept a loss on its bonds, the bank has not budged.
Greece and European officials continue to discuss a plan that would allow the central bank to swap its Greek bonds for another form of Greek debt that, unlike the bonds it now holds, would not be eligible for a haircut.
If such a swap were to occur, the central bank would not be affected if Greece were to invoke the collective-action clauses and force a loss on all bondholders.
Also Saturday, the Greek government criticized as unacceptable a reported German proposal for greater European Union oversight of Greece?s national budget. The report, which appeared on Friday in The Financial Times and was credited to anonymous German government sources, called for more direct European intervention in Greece?s budget ? a delicate subject in Greece, where populism and anger at a perceived loss of national sovereignty is on the rise.
?The government emphasizes that this area of competence belongs exclusively to the Greek government,? Pantelis Kapsis, the Greek government spokesman, said in a statement.
As part of the October deal that also called for the voluntary write-down of Greek debt, the European Union established a task force to work with Greek government ministries to speed up reform. The task force has the ability to look into government records, but does not have clear decision-making power.
The already tense political climate in Athens has grown more turbulent since last week, when the so-called troika of foreign lenders called for a number of harsh new austerity measures ? including sharp reductions to the Greek minimum wage and the reduction of more than 100,000 public sector workers ? which could well cause social unrest in a country already hit hard by nearly two years of wage cuts and tax increases.
Indeed, in a shift in tone from the past, when the governing Socialist party generally accepted the austerity measures in exchange for foreign loans, there is growing discontent at the troika?s failings, like relying too heavily on tax increases and not promoting growth.
On Sunday, the technocratic Prime Minister Lukas Papademos is expected to meet with the three parties supporting his fragile interim coalition ? the Socialists, the center-right New Democracy Party and the hard-right Popular Orthodox Rally, known as L.A.O.S. ? to urge them to forge more political consensus to pass pending legislation on stalled reforms and to address the new demands.
The leader of this coalition has threatened not to sign an agreement demanded by the troika that Greek political parties pledge to support the austerity measures even in future governments. The troika believes that such an agreement is a logical requirement in exchange for billions of euros in loans, but in Greece there is a growing populist discontent that it is a subversion of the democratic process.
This article has been revised to reflect the following correction:
Correction: January 28, 2012
An earlier version of this article misstated the given name of the Greek government spokesman. He is Pantelis Kapsis, not George.
Source: http://feeds.nytimes.com/click.phdo?i=b4c2b675e620a3cf6c3aa673b42d5a51
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