Greek bondholder deal rebuffed

Financial Times
January 23, 2012

Eurozone finance ministers on Monday night rebuffed a deal presented by private owners of Greek debt as a “maximum” offer for the losses they are willing to sustain, opening a fresh round of brinkmanship in tortuous negotiations to ease the country’s debt load.

At stake is whether Greece can reduce its debt to a manageable level by cutting €100bn on a voluntary basis, or if it will be forced to resort to a hard default, in which it would unilaterally renege on its obligations.

Charles Dallara, managing director of the Institute of International Finance, which is representing the majority of private bondholders, characterised an offer tabled to Greek authorities on Friday night as “at the limits of a voluntary deal”.

But the proposed terms – thought to include a loss of 65-70 per cent on current Greek bonds’ long-term value – failed to sway eurozone finance ministers meeting in Brussels. Jean-Claude Juncker, the Luxembourg prime minister who heads the group of eurozone finance ministers, said talks “would have to be resumed” to reach a settlement that is “clearly below” the bondholders’ existing offer.

Specifically, Mr Juncker demanded that the average interest rate on new long-term bonds to be swapped for existing Greek debt be below an average 3.5 per cent in the period up to 2020. One person familiar with the discussions said the ministers had not issued a final rejection, and speculated that negotiations would continue at least until a meeting of European heads of government next week.

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