Greece confident of debt swap deal

Updated: 2012-01-27 10:29


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ATHENS - Greece appeared confident of a positive outcome over a Greek debt swap deal by the weekend, as crucial talks with private creditors aiming to avert a devastating default were due to resume in Athens on Thursday evening.

Greek interim Prime Minister Lucas Papademos will receive once again at his office the Managing Director of the Institute of International Finance Charles Dallara, the leading negotiator on behalf of private banks and hedge funds holding Greek bonds, in continuing efforts to restructure and make "sustainable" the Greek sovereign debt.

In comments to Greek journalists during a reception for diplomatic corps in Athens this week Papademos voiced optimism over "positive results in deliberations until the weekend."

The previous round of negotiations between Dallara and Greek officials ended last Friday without a breakthrough. It had fuelled hopes over an "imminent" draft accord that would be presented at the January 23 euro zone Finance Ministers meeting in Brussels.

Ahead of another EU summit to be held in coming Monday, the two sides rush to reach a compromise, as time presses. Without an accord on time over the voluntary 50 percent "haircut" of the Greek debt owned by the private sector, as initially agreed in the October 26 euro zone summit, Greece could go bankrupt in March. Athens faces a 14.5 billion euro ($19.07 billion) bond payment on March 20.

The deal on the Private Sector's Involvement (PSI) in marathon efforts to resolve the Greek debt crisis, is promoted as a key to open the way for a vital second aid package to Athens by EU counterparts and the International Monetary Fund (IMF).

According to local media reports, citing sources of both sides, the Greek government and Dallara will discuss on Thursday a new offer by private lenders over a reduced average interest rate of below four percent for the new 30-year Greek bonds that will replace the current bonds.

The final height of interest rates will determine the extent of losses private banks and investment funds will suffer. Initially the October 26 agreement forecast that 100 billion euros ($131.58 billion) will be erased from a total of 360 billion euros ($473.68 billion) of the Greek state debt.

Standing by Greece's side, the public creditors have increased pressure on private bondholders in recent days to accept bigger losses that will secure the sustainability of the Greek debt.

On the other side, the European Central Bank faces pressure to join private sector bondholders in accepting losses. IMF's Managing Director Christine Lagarde this week said that European governments should increase support to Greece if private creditors do not go far enough.

Greece depends on multi-billion euro EU/IMF rescue loans since May 2010 in exchange of painful austerity and reform policies in order to stave off a financial meltdown that would rock the entire euro zone.

In parallel with talks on the PSI, Greek officials hold a series of deliberations in Athens this week with a delegation of EU/IMF inspectors on the progress made in recent weeks in efforts to slash deficits and restore growth and on the terms of the release of the second bailout aid to Greece.