Greece: bond swap talks satisfactory, no deal yet

AP News
Posted: Jan 10, 2012 10:56 AM
Greece: bond swap talks satisfactory, no deal yet

Greece's talks with private creditors over a bond swap deal that is a vital part of the country's second international bailout are making progress and are close to reaching an agreement, officials said Tuesday.

Under the deal, creditors would accept a 50 percent reduction in the face value of the Greek government bonds they hold, potentially cutting the country's debt by euro100 billion ($128.08 billion). The bond swap, part of a euro130 billion new international rescue package agreed by European leaders in October, seeks to ease Greece's massive deficit and help the country emerge from a financial crisis that has threatened to engulf the 17 countries that use the euro as their currency.

Athens is seeking to wrap up the complicated talks ahead of a visit by international debt inspectors, expected next week, and to ensure continued international funding to prevent a default in late March, when euro14.4 billion worth of bonds mature. Without the rescue funding, Greece would not be able to redeem the bonds.

Greek Deputy Finance Minister Philipos Sachinidis said that while there was no agreement yet on the bond swap _ known as the Private Sector Involvement, or PSI _ the discussions were at a "satisfactory" point.

"We have not come to an agreement, there is not some final text at the moment," Sachinidis said on RealFM radio. "What I can say is that there are developments in these discussions and this means we are ... at a satisfactory point in the course of these discussions."

The negotiations on the details of the debt restructuring have dragged on amid disagreements over how much of a hit _ or "haircut" _ banks and other private investors should take.

European Union Economic Affairs Commissioner Olli Rehn indicated a deal was close.

"We are about to finish shortly the negotiations on private sector involvement," Rehn said in Brussels.

He said he was "reasonably confident" that agreement on the second bailout would be finalized once the bond swap agreement was settled.

On Monday, Frank Vogl, a spokesman for the Institute of International Finance, which has been leading the talks for the bondholders, rejected recent press reports that negotiations were considering a face value cut of more than 50 percent.

Sachinidis stressed that Athens was seeking a voluntary participation in the deal from the private creditors, and that the main aim was to ensure the country's debt becomes viable.

"The object is ... for it to be a voluntary agreement in which the private sector participates and will ensure first of all the sustainability of the Greek debt, which is the most important issue," he said.

Debt-crippled Greece has been relying on an initial, euro110 billion international package of rescue loans since May 2010. But it became clear last year that the bailout was not enough to prevent the country from a default that could drag down the rest of the eurozone, and a second rescue plan was agreed on in October.

Locked out of the international bond market by astronomically high interest rates, the country has maintained a presence in the markets through short-term debt auctions. On Tuesday, Greece raised euro1.625 billion ($2.07 billion) in the sale of 26-week treasury bills, at a marginally lower interest rate than a similar auction last month.

The sale was 2.8 times oversubscribed and carried a yield of 4.9 percent, marginally down from the 4.95 percent yield in the December auction, the Public Debt Management Agency said.


Gabriele Steinhauser in Brussels contributed.