Greek debt talks end without deal, to resume next week

Greece and its creditor banks, racing against the clock to reach an agreement to avert a disorderly bond default, packed up work without a deal yesterday but with more talks likely next week.Athens needs a bond swap, effectively seeing creditors voluntarily giving up a lot of their promised returns, to slash its debt to more sustainable levels and convince the European Union and International Monetary Fund to keep lending it cash.It needs the money to stay afloat when a major bond redemption comes due in March.“We will most likely resume talks next Wednesday,” Finance Minister Evangelos Venizelos told reporters after meeting with Charles Dallara, the head of bank lobby IIF which negotiates in the name of private bondholders, for a second day in a row.“We must process more issues,” Venizelos said. Dallara left the meeting without making any statement.The IIF warned on Thursday that time was running short to reach a deal.A deal must be struck well before the March 20 bond redemption of €14.5bn, because the paperwork alone will take at least six weeks.Meanwhile, a source close to the negotiation said yesterday Greece’s talks with the bank are in “grave condition” and could break down altogether.“There is extreme tension,” the source said. “All parties involved in this crucial negotiation ought to be aware of this very grave condition and assume their responsibilities to avoid the worst,” the official added. The IIF said: Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.”Greek media yesterday reported that a disagreement has surfaced on the interest rate of new government bonds that would be issued to credit holders in return for the maturing debt being phased out under the planned deal. The Kathimerini newspaper said private sector negotiators want new debt obligations to be repaid at about a 5% interest rate, whereas Greek officials are only willing to agree to a level of around 4%. EU, IMF and ECB inspectors, who arrive in Athens on Tuesday for talks on a new, €130bn rescue plan for Greece, also want to see an agreement on the debt swap before they agree on the bailout.Any agreement with private bondholders on debt reduction should be in line with the terms decided by eurozone leaders on October 26, the EU Commission said yesterday.Under the 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 a sustainable 120% in 2020 from 160% now.According to a source close to the negotiations, Greece has secured less than 70% of support from private creditors on the debt writedown. That would be insufficient to meet the targeted €100bn in writeoffs required to bring the country’s debt levels down. As a result, media and experts have speculating that the eurozone may extend further financial aid to Greece. A government spokesman said earlier that Greece had not decided yet on whether it will submit a law to force creditors into the bond swap, denying a Greek media report that it would do so by Monday.Three senior eurozone sources said on Thursday that Athens was mulling such a bill, which would make a debt restructuring binding for all investors once a certain percentage agreed.Without using so-called collective action clauses, the participation rate in any debt swap deal could be smaller than needed because many hedge funds would profit more if Greece defaulted because they would get paid in full from insurance.German Foreign Minister Guido Westerwelle will arrive in Athens tomorrow for a meeting with his Greek counterpart Stavros Dimas, as part of a flurry of diplomatic contacts.Greece will test markets on January 17 with an auction €1.25bn ($1.59bn) of three-month T-bills to fund the rollover of a €2bn issue that matures on January 20. T-bills are Greece’s only source of market financing.