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13 January 2012

FT: Greek debt default threat grows


Talks over Greece's debt restructuring broke down, an unexpected blow that makes it increasingly likely that Athens will become the first government of a developed country in more than 60 years to suffer a full-scale default on its debt.

In a statement, lead negotiators for Greek bondholders said that the latest offer made by Athens “has not produced a constructive consolidated response” from “all parties” – a clear reference to a hardline stance taken by some international lenders that private investors shoulder even more losses.

The International Monetary Fund, in particular, has concluded that bondholder losses must be increased significantly, or a second Greek bail-out would have to be bigger than the €130 billion agreed in October. “Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach”, said the statement, put out by Charles Dallara, managing director of the International Institute for Finance, and Jean Lemierre, of BNP Paribas, who have been negotiating on behalf of banks and other financial institutions. “We very much hope, however, that Greece, with the support of the euro area, will be in a position to re-engage constructively with the private sector”, the two men said.

Despite the move for more time, the announcement comes perilously close to putting at risk a €14.4 billion bond repayment due from Athens in March. Although the redemption is still weeks away, government negotiators had hoped the restructuring would be in place so that Greece would not have to repay the entire sum. Unless the restructuring terms are completed in a matter or days, the deal is unlikely to be finalised in time and international lenders would have to shell out billions of euros in additional aid quickly or Athens would default on the payment. On Friday, Evangelos Venizelos, Greek finance minister, said talks would resume in Athens on Wednesday and dismissed suggestions his government was headed to a disorderly default.

Full article (FT subscription required)



© Financial Times


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