Optimism Greece will strike rescue deal

Greece edged closer yesterday to winning a new rescue package worth €130 billion as officials said Germany was optimistic a deal could be struck despite misgivings over whether Athens would stick to commitments.

Before a crunch meeting of eurozone finance ministers on Monday, caretaker prime minister Lucas Papademos talked to fellow eurozone leaders to persuade Berlin and others to back bailout measures needed to stave off bankruptcy. German Chancellor Angela Merkel, Italy’s Mario Monti and Mr Papademos all expressed optimism over an accord during a three-way conference call, Mr Monti’s office said in a statement.

Mutual accusations of brinkmanship between Athens and other euro capitals have soured the atmosphere and strained ties within the single currency union as it faces its toughest challenge since euro notes and coins were introduced in 2002.

Negotiations were put back on track on Thursday when Athens set out the remaining cuts in a €3.3bn austerity package whose passage through parliament triggered rioting and looting through central Athens last Sunday.

But there are still question marks over whether Greece has done enough to ease the crisis and bring its debt mountain down from 160% of national output to the still-daunting 120% by 2020 which was agreed with partners and lenders last year.

“The scepticism is especially strong among the AAA states over whether Greece will be able to make it,” Germany’s Der Spiegel magazine quoted Austrian finance minister Maria Fekter as saying of countries with top- notch credit ratings, such as Germany, Finland and the Netherlands.

“The risk of a Greek insolvency is not off the table.”

Central bank sources told Reuters the ECB was studying whether to allow Greek bonds held in national eurozone central banks’ investment portfolios to be subject to the same writedowns which private investors are due to take.

Eurozone central banks hold around €20bn of Greek bonds in their traditional investment portfolios.

If they do take losses on those bonds it would provide an immediate lump sum for Athens and so help it approach the debt reduction goal.

One central bank source said it was “50-50” whether the deal would go ahead as an accompaniment to a debt restructuring offer which Greece will offer to private creditors as part of the wider rescue plan.

The swap will mean the real value of bonds held by banks and insurers will fall by about 70%.

Greece needs the funds before €14.5bn of debt repayments fall due on Mar 20, yet mistrust is high.

Greece could go to the polls as early as April, raising questions as to whether the new government will stick to the austerity terms.

Conservative leader Antonis Samaras — whom polls tip as the next premier — has said he would pursue the plan while reserving the right to “modifications” if the economy needs them.

— Reuters