January 10, 2012
German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde will meet in Berlin tonight as pressure grows to complete a Greek debt swap needed to put a rescue plan in place.
The deal, hammered out by European Union leaders, Greek officials and the nation’s creditors on Oct. 26, called for bondholders to accept a 50 percent cut in the face value of their Greek debt, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020.
More than two months after the accord was announced, creditors and authorities still need to agree on the coupon and maturity of the new bonds to determine the total losses investors would suffer. The IMF has sought a lower coupon than the range offered by investors to ensure Greece meets the deficit targets amid a worsening economic outlook. Failure to complete the voluntary swap threatens to further undermine confidence in the EU’s crisis leadership and deter investors from Asia and the U.S. from buying Europe’s debt.
“All non-European investors except a few bargain hunters will keep clear of investing in the euro area,” said Espen Furnes, an Oslo-based fund manager at Storebrand Asset Management, which oversees $72 billion.
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