Greek bondholders draw line in the sand

Financial Times
January 22, 2012

Private owners of Greek debt have made their “maximum” offer for the losses they are willing to accept, the bondholders’ lead negotiator has said, implying that any further demands could kill off a “voluntary” deal and trigger a default.

Charles Dallara, managing director of the Institute of International Finance, said in an interview that he remained “hopeful and quite confident” the two sides could reach a deal that would prevent a full-scale Greek default when a €14.4bn bond comes due on March 20.

But the mood in Athens was tense on Sunday night after it became clear that an outline agreement on cutting Greece’s debt by €100bn could not be reached ahead of Monday’s meeting of eurozone finance ministers in Brussels.

One banker said Friday’s demand by official creditors, led by the International Monetary Fund, for a further interest rate cut of 50 basis points on new long-term bonds to be swapped for existing Greek debt “may have put a voluntary deal out of reach”.

Mr Dallara said the IIF’s position tabled with Greek authorities on Friday night – believed to include a loss of 65-70 per cent on current Greek bonds’ long-term value – was as far as his side was likely to go.

“I think its clear we are at the limits of a voluntary deal,” Mr Dallara said, recalling that eurozone heads of state had committed to keeping the restructuring voluntary at a high-stakes EU summit in October. “It is clear to me we are at a crossroads.”

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