SOVEREIGN DEBT:GREECE WAS last night on the verge of a breakthrough in talks with its creditors that could wipe out up to 70 per cent of its debts and alleviate the crisis in the euro zone.
An outline deal, hurriedly endorsed by Brussels, came after a frantic three days of negotiations that at one time appeared to be heading for deadlock.
It appeared Greece had secured a deal to pay an interest rate of 3.1 per cent, rising to 4.75 per cent, on new 30-year bonds created from its outstanding €360 billion debt burden. The effect would be for creditors to accept writedowns of up to 70 per cent on many of their loans.
Sources close to the Greek government said it was still possible that major lenders could walk away if there was a failure to get agreement on some of the fine detail, but Athens was confident that further talks over the weekend would bring a comprehensive deal.
The news came as leaked figures show that the IMF will next week sharply revise downwards its projections for the euro zone economy.
A leaked draft of the IMF’s global economic outlook report, scheduled for publication on Tuesday, says the agency expects the euro zone economy to contract by 0.5 per cent this year, with growth in 2013 amounting to only a muted 0.8 per cent.
Only last September the IMF said it expected the euro zone economy to grow by 1.1 per cent this year.
The scale of the revision puts into context the decision by the IMF this week to announce its intention of raising $600 billion in new resources to lend to countries struggling with the fallout from the growing euro zone debt crisis.
The figure is also important in that it underpins the IMF’s position in discussions with bailout countries, including Ireland.
Greece has become the focus of tension in the euro zone for the third time in as many years after first announcing it was in trouble in the spring of 2010. It was bailed out along with Ireland and Portugal, then in May last year it became clear that the €110 billion Athens had received would be insufficient to finance its growing debts and that a second bailout was necessary.
German resistance to giving any more financial support without a sacrifice by creditors of at least 50 per cent of their loans has held up attempts by Brussels to co-ordinate a second bailout.
Greece’s finance minister, Evangelos Venizelos, has spent the last two weeks locked in discussions with a team representing the banks, insurers and hedge funds that hold Greek debt.
It is understood a framework deal is in place outlining the basic structure of a bond swap that Mr Venizelos wants to present at the eurogroup meeting of finance ministers in Brussels on Monday.
He needs a deal in place, and approval for a second bailout plan, before a €14.5 billion loan for refinancing in March.
"The atmosphere of the talks is good, they are continuing today, and we hope they will be concluded very soon," a government spokesman said. "This is very important for the sustainability of the national debt and our ability to handle the debt." – ( Guardianservice)
