New York, Berlin, Paris, Athens: the phones of state officials, economists and bankers are ringing non-stop, brains are on fire and nerves lay blank as the PSI negotiations did not reach a deal over the weekend, ahead the EuroGroup meeting on Monday in Brussels. Men and women in business suits run nervously up and down trying to find a solution, so that Greek Finance Minister Evangelos Venizelos will be able to table at least a handwritten draft of the Greek bond swap tomorrow.
German Chancellor Angela Merkel and IMF-head Christine Lagarde will meet today in Berlin, later with Van Rompuy and Barroso. Time pressures and solution are needed, to avoid a Greek collapse and consequently the total disaster of the euro zone.
“Athens was anxious to strike a deal ahead of a meeting of eurozone finance ministers on Monday, which could have set in motion the paperwork and approvals necessary to give Greece its next tranche of aid, worth about €130bn. This will prevent a disorderly debt default when €14.5bn of Greek bonds mature in March” (Telegraph)
A panic broke out when head of IIF Charles Dallara left scheduled/unexpected Athens on Saturday morning. Dallara flew to Paris allegedly for a last tango before the PSI deal. An IIF spokesman dismissed press claims that the talks had been ‘suspended’. Instead he said that the talks have made “substantial” progress and that Dallara could return to Athens at any point.
The main problem between of the two sides is the interest rate (coupon) of the new Greek bonds that will be issued after Greece’s debt has undergone a haircut and has been restructured. Private creditors from the banking sector apparently want the interest rate to be between 3.8% and 3.9%, while the International Monetary Fund and Germany want it at 3%, claiming the Greek debt will not be sustainable. At the same time there seem to be some confusion about the height of the ‘haircut’.
International private creditors have already accepted a 50 % “haircut” or loss of their investments in Greek bonds, a move that would cut €100bn from Greece’s €360bn debt pile. “However, the sticking points appear to be the term to maturity of the new replacement bonds and the rate of interest, or coupon, that they will pay. The IIF had been pushing for an average coupon of 4.25pc as it became clear that the haircut could grow to as much as 70pc,” reports the Telegraph.
The question is, of course, whether a PSI deal can solve the Greek debt crisis or a further debt restructuring would be due in a couple of months.
“Even if almost all of Greece’s private creditors agreed to write off half of what they are owed, its debt would still be about 120% of GDP by 2020. More likely, participation in any write-off would be lower than that, leaving debt above 145% of GDP in 2020. That implies another debt restructuring would be needed after this one” (Economist)
Greek newspaper Proto Thema reports of unverified scenarios claiming the PSI talks could be extended up to next weekend (Jan 28/29 2012), just minutes before the EU Summit on Jan 30, when the second bailout for Greece will be on the agenda. The PSI deal is a precondition for the second aid package to Greece. And then the threat will be very clear: PSI Deal Now or Default.
PS I’m fed up to Default every two months….
Dallara should tell the Greeks and the troika to shove it! Enough is enough, why should investors and pensioners shoulder all the losses to save the IMF and ECB who should allowed a full restructuring two years ago? If the IIF and Dallara have any backbone they will walk away now! Let’s see if the Troika are still up for a showdown afterwards.