January 25, 2012
Time is running out for reaching an agreement with private investors on a Greek debt haircut, with negotiations stalled over interest rates. Meanwhile Germany continues to reject pressure to increase its contribution to the permanent bailout fund. German commentators are pessimistic.
Tensions are running high amid urgent efforts to reduce Greece's huge debt, particularly between private investors and European leaders after talks stalled over the weekend.
On Tuesday euro-zone finance ministers outlined tough conditions for new bailout payments to Greece. They want the interest rate on new Greek government bonds swapped with private creditors to be well below 4 percent. But the Institute of International Finance, leading negotiations for the private bondholders, has demanded a 4 percent average on the new lower-value, longer-term bonds, which are critical to bringing Greek debt back to a sustainable level.
The lower interest rates are important to the EU finance ministers because any debt relief not provided by private investors will have to be compensated for by euro-zone members and the International Monetary Fund. But finding an interest rate for the new bonds that private investors will agree to voluntarily is proving to be problematic.
Negotiations with Greece's private creditors have been difficult despite the need for a rapid and successful conclusion to avoid insolvency. But a successful conclusion to the negotiations is a condition for finalizing a second crucial bailout package for Greece, worth €130 billion. Meanwhile time is running out. A deal must be reached soon if Greece is to meet an upcoming bond repayment deadline in March.
As Greece's financial situation worsens, there have also been calls for greater efforts from Athens, which has failed to meet the budgetary and reform targets agreed upon in exchange for aid.
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