Greece moves closer to vital bond-holder deal

GREECE was closing in on an initial deal with private bond holders last night that would prevent it from tumbling into a chaotic default but lose investors up to 70% of the loans they have given to Athens.

Any agreement will be followed by technical talks over the weekend, sources close said.

Private bondholders would most likely incur a real loss of 65%-70%, with the new bonds having a 30-year maturity and offering a progressive coupon, or interest rate, averaging out at 4%, a banking official told Reuters.

Cash-strapped Greece is fast running out of time as it pushes to wrap up an agreement by Monday, paving the way for a fresh injection of aid before €14.5 billion of bond repayments fall due in March.

“There could be a pre-agreement tonight, but technical discussions with the lawyers will likely continue over the weekend and next week,” another source said, adding that involving the ECB in the deal was also discussed.

“We expect them to make an effort as well. It could be through a special deal, as you would expect for a body like the ECB,” the source said.

After a breakdown in talks last week over the coupon, or interest payment, that Greece must offer on its new bonds raised fears of a disastrous bankruptcy, the two sides resumed negotiations on Thursday.

Charles Dallara, who negotiates in the name of the private bondholders through the International Institute of Finance, was to meet with senior Greek officials later in the day, finance minister Evangelos Venizelos said after concluding a morning round of talks.

In a carefully choreographed series of meetings, senior eurozone finance ministers will hold a conference call and Prime Minister Lucas Papademos will meet chief EU, IMF and ECB inspectors before resuming talks with Dallara.

The stakes could not be higher. Greece needs to have a deal in the bag before funds are doled out from a €130bn rescue plan that the country’s official lenders, the EU and IMF, drew up in October.

The paperwork alone is expected to take weeks, meaning failure to secure a deal soon could put Athens at risk of a default in March, which could jolt the financial system and tip the global economy into recession.

Adding to the pressure, Troika officials met with the Greek government yesterday to discuss reforms and plans to finalise that bailout package.

“The deal must be completed. There is no more time left,” said a Greek government official who requested anonymity.

The swap is aimed at cutting €100bn off Greece’s over €350bn debt load.

The second bailout — drawn up on condition Greece pushes through painful cuts and structural reforms — is expected to reduce Greece’s debt to a more manageable 120% of gross domestic product in 2020 from about 160% now.

Investors have also bridled at Greece’s threat to enforce losses if not enough bondholders sign up to the deal.

Greece is now stumbling through its worst economic crisis since the Second World War, with unemployment at record highs and near-daily protests against austerity measures.