Greek Debt Talks to Resume

Wall Street Journal
January 26, 2012

Greece and its private-sector creditors were set to resume negotiations in Athens later Thursday to restructure the country's towering debt load, amid concerns that Greece's funding needs might be bigger than originally thought.

Euro-zone officials in October agreed to provide Greece with debt relief with a planned package to ensure that its debt equals no more than 120% of its gross domestic product in 2020. Since then, further deterioration in the Greek economy and a budget deficit that has widened to nearly 10% of GDP could put those projections in doubt. The new debt-sustainability study, due for release by the European Union and the International Monetary Fund once talks with the private creditors are completed, might require a rethink on the funding Greece will need to be able to service its debt for the rest of the decade.

Greece's debt restructuring is planned to take the form of a bond exchange in which creditors holding some €200 billion ($262.12 billion) in Greek bonds swap their securities for new instruments with half the face value. The key sticking point is how much interest new bonds should pay. Germany and the IMF have led calls for private-sector bondholders to accept a coupon of well under 4%, while investors so far have insisted on 4% on the new bonds as a minimum.

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