Greece debt talks collapse, increasing risk of default

StarTribune vom 13.01.2012

Greek officials and its creditor banks are struggling to agree on the amount of total losses for investors.

Greece's creditor banks broke off talks Friday after failing to agree with the government about how much money investors will lose by swapping their bonds, increasing the risk of the euro-area's first sovereign default.

Proposals put forward by a committee representing financial firms have "not produced a constructive consolidated response by all parties," the Washington-based Institute of International Finance said. "Discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach." The government said the two sides will reconvene discussions in five days.

Greek officials and the nation's creditors agreed in Oct-ober to implement a 50 percent cut in the face value of Greek debt, with a goal of reducing Greece's borrowings to 120 percent of gross domestic product by 2020. More than two months after the accord was announced, the two sides still need to agree on the coupon and maturity of the new bonds to determine the total losses for investors.

"The current rescue program doesn't work and requires a rethink that needs to be done very quickly to keep Greece from defaulting," said Christian Schulz, a senior economist in London at Berenberg Bank. "The risk is high and the stakes are high: that Greece will be let go from the euro."

The talks were halted after the two sides failed to agree on the coupon for the new bonds, said a person with direct knowledge of the negotiations. European governments have been pushing for the Greek debt to carry a coupon of 4 percent, the person said. Private bondholders said they would accept those terms for a period of time if they were able to get a bigger payout later as Greece's economy recovered, the person said.

"The sticking point is actually coming down to what the interest rate would be on the new bond," said Hans Humes, president of Greylock Capital Management and a member of team negotiating the deal with the government. If the talks fail and Greece defaults, "there will be a lot of contagion," he said. "The ball is in their court. If you want to do something to head off what could be a disorderly process, now's the time."

Talks between Prime Minister Lucas Papademos, Finance Minister Evangelos Venizelos and Charles Dallara, the managing director of the IIF, will resume on Wednesday as more work is needed after Friday's second day of consultations, said a Greek Finance Ministry official.

"This is bad news because they've been negotiating for months to overcome differences," said Matthias Engelmayer, a Frankfurt-based analyst at Independent Research. "In the end, they'll need to reach an agreement because no one is interested in a disorderly default for Greece."

Quelle: StarTribune / Aaron Kirchfeld, Jesse Westbrook