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A clock ticking toward 12 o'clock
Time is running out to seal a dealImage: picture-alliance/Okapia KG

Dropping debts?

January 13, 2012

The government in Athens and private investors are seeking a deal on writing off 100 billion euros of Greek debt. But time is running out.


Private sector lenders might prove unwilling to write down Greek debt by 100 billion euros ($128 billion), one of the various measures introduced to try to bring the country back from the brink of bankruptcy.

Greece needs to secure the voluntary debt exchange, which could take six weeks to arrange once an agreement is reached in principle, by March 20; that's when its next large bond redemption is due.

"A range of issues were discussed and some key areas remain unresolved. Discussions will continue in Athens [on Friday], but time for reaching an agreement is running short," the Institute of International Finance (IIF) said in a statement after managing director Charles Dallara met with Greece's prime minister and finance minister on Thursday.

"It is essential in order to finalize the voluntary [private sector involvement] agreement that support be given by all official parties in the days ahead," the IIF statement said.

For Greek officials, who are hoping to cut their debt burden from 160 percent of GDP to 120 percent with the deal, the talks had provided cause for guarded optimism.

"I'm cautious and very confident after this two-hour meeting," Finance Minister Evangelos Venizelos said in a statement.

The chief executive of French lender Societe Generale was perhaps the most positive in an interview with the newspaper Les Echos, where he said that thanks to "exceptional" efforts on the side of the banks, the talks "have a good chance of reaching their end in the coming days."

Public sector to pick up slack?

Greek Finance Minister Evangelos Venizelos
Greece's finance minister said he was cautious and very confidentImage: dapd

Failure to secure the so-called haircut could jeopardize Greece's future installments of emergency loans from its eurozone partners and the International Monetary Fund, prompting speculation that any losses in the private sector deal might have to be picked up by these organizations.

"If the participation [of private creditors] does not reach 100 percent, greater support from our partners would be necessary," Greek Deputy Finance Minister Philippos Sahinidis said in an interview with the Athenian radio station Skai on Thursday.

The private sector haircut was a key component of the second Greek rescue package - worth roughly 130 billion euros - agreed upon last autumn. Finalizing this could be a deal-breaker for inspectors from the EU, International Monetary Fund and the European Central Bank, which are charged with ensuring that Greece is doing its part to warrant the extra loans. Their discussions on Greece's second so-called bailout are scheduled to begin on Tuesday.

According to reports in several Greek papers and business publications like Bloomberg, most banks (accounting for as much as 70 percent of the write down) have agreed to the deal, with a smaller group of hedge funds in particular appearing reticent to accept. As the proposed write down would be voluntary, any insurance clauses taken out against the bonds would not be triggered - meaning that investors who were betting on Greece to fail by taking out such insurance schemes might be doubly disinclined to drop the debts.

Author: Mark Hallam (AFP, AP, Reuters)
Editor: Nancy Isenson

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