Athens.- Greece and its private creditors worked on stitching together the final bits of a complex debt swap agreement Saturday, amid growing optimism a deal will be clinched in time to avert an unruly default.
After weeks of muddling through round after round of inconclusive talks, the negotiations appear to be in their final phase, though it was unclear if a preliminary deal could be secured in time for Monday’s European Union summit.
Greek officials and Charles Dallara, chief negotiator for banks and insurers, left Saturday’s negotiating session without making any comment. Earlier, Prime Minister Lucas Papademos told Reuters he expected the deal to be concluded within days.
Still, for Athens, progress on the debt swap front is at risk of being overshadowed by increasingly problematic talks with its foreign lenders, whose inspectors are in town demanding unpopular reforms that no politician wants to be linked to.
“Today will be another tough day,” said George Karatzaferis, leader of the far-right LAOS party, one of three parties in Papademos’s emergency coalition government. “We will see whether we can bear the burden that lies ahead.”
Crushed by 350 billion euros of debt and running out of cash quickly, Greece finds itself in a precarious position as it scrambles to appease the troika of foreign lenders and stitch up a deal with private creditors simultaneously.
Unimpressed with Athens dragging its feet on reforms, the “troika” of foreign lenders – the European Commission, IMF and European Central Bank – have warned they could hold up aid if more is not done to restructure the Greek economy.
Representatives of the EC-ECB-IMF ‘troika’ handed the Greek government on Friday a “road map” for the country, as reportedly drawn up by the country’s creditors. The 10-page report, drafted by the IMF, the European Union and the European Central Bank, analyses the measures of a new memorandum that must be implemented by the government, which combined with a pending “haircut” of Greek state bonds, would lead to the signing of a new lending agreement.
The report envisages new tax measures (such as a proposal to raise objective property values by 25 pct), lay-offs in the public sector, cutbacks in supplementary pensions, cutting special payrolls in the public sector, promoting large-scale privatisations, slashing healthcare spending, a further opening of so-called “closed” professions, and the issuance of preferred stock for banks, which will receive state funds after the haircut, etc.
“It’s all very dense, difficult and crucial,” a Greek finance ministry official said. “There is optimism because the country needs to survive and we need to protect its citizens because they have suffered a lot.”
The debt swap, in which private creditors take a 50 percent cut in the nominal value of their Greek holdings in exchange for cash and new bonds, is also a prerequisite for the country to secure a 130-billion-euro rescue plan drawn up last year.
The two sides have broadly agreed that new bonds under the swap would have a 30-year maturity, but the talks have struggled over the interest rate Greece must pay on the new bonds and whether the European Central Bank and other public creditors will also accept losses on their holdings.
A debt deal, aimed at chopping 100 billion euros off Greece’s debt load, must be sealed in about three weeks as Greece has to repay 14.5 billion euros of debt on March 20.
Otherwise Greece will sink into an uncontrolled default that might spread turmoil across the euro zone and tip the global economy back into recession.
International Monetary Fund Managing Director Christine Lagarde said Saturday euro zone members were making progress to overcome their crisis but must do more to strengthen their financial firewall, adding the IMF was ready to help.
“There is progress as we see it,” Lagarde told a panel discussion at the World Economic Forum in Davos.
“But it is critical that the euro zone members actually develop a clear, simple, firewall that can operate both to limit the contagion and to provide this sort of act of trust in the euro zone so that the financing needs of that zone can actually be met.”The German news magazine Der Spiegel reported Saturday that Greece’s international lenders thought Athens would need 145 billion euros of public money from the euro zone for its second bailout rather han the planned 130 billion euros.
The magazine said the extra money was needed because of the deteriorating economic situation in Greece, echoing a Reuters report Thursday.