March 24, 2023

Greek Coalition Partners to Back New Reforms

Prime Minister Lucas Papademos had sought agreement among coalition partners on the broad outlines of a deal with private creditors to erase $130 billion of debt as well as a recovery plan suggested by the European Commission, European Central Bank and International Monetary Fund, collectively known as the troika.

Athens had reported progress over the weekend between Greece’s political leadership and Charles Dallara of the Institute of International Finance, the bankers’ lobby representing most investors, regarding how much of a loss the private sector creditors would be willing to accept on their bond holdings. A deal is expected within days.

The statements on Sunday by Greece’s technocrat premier suggested that he had overcome some of the objections of the party leaders — his Socialist predecessor George Papandreou, the conservative leader Antonis Samaras and the right-wing leader Georgios Karatzaferis — to new austerity measures proposed by the troika, although some points of contention remain.

The three party leaders were later quoted on Sunday as saying that their only objections were to proposed cuts to wages in the private sector — which would intensify a deep recession — and to reported German demands for a European Union commissioner to oversee Greek budget decisions.

Still, any new measures could face a struggle to pass the Parliament, where many lawmakers remain resistant to unpopular measures.

Mr. Papademos said that the alternative to the completion of talks on the debt swap and on a second bailout for Greece was a potentially catastrophic default.

“If this process is not completed successfully, we will find ourselves faced with the specter of bankruptcy, which will have serious repercussions for society and especially for the economically vulnerable,” he said.

The talks with private creditors have broken down twice before, largely because the International Monetary Fund and European leaders have pushed for greater debt reduction in light of Greece’s worsening economic outlook, so there is again the possibility that these negotiations will founder.

Reining in Greece’s budget problems will not be the only item Monday in Brussels.

Leaders are expected to bow to mounting evidence that austerity alone risks stoking recession and plunging fragile economies into a downward spiral; a draft of the European Union summit meeting communiqué calls for “growth-friendly consolidation and job-friendly growth.”

Leaders will discuss long-term structural reforms and better use of European Union subsidies, while avoiding mention of fiscal stimulus from Germany, the powerhouse of the euro zone.

Then the meeting, which will be held at the same time as a national strike in Belgium, will try to satisfy Berlin’s desire for fiscal discipline by wrapping up talks on a new intergovernmental treaty.

Meanwhile, several nations are also expected to champion the need for a financial transaction tax, a plan that one official study suggested could cut growth.

Stephen Castle contributed reporting from Brussels.

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Greek Deal Unlikely Before Next Week

ATHENS (Reuters) – The Institute of International Finance said on Saturday that talks on a Greek debt swap deal were continuing and its chief’s departure from Athens was scheduled and not unexpected.

Charles Dallara, who negotiates a Greek debt swap in the name of creditors, had “longstanding personal appointments” out of Greece, the IIF said in a statement.

Greek government officials said late on Friday that talks in Athens were expected to continue on Saturday.

“Talks are continuing,” the IIF said in a statement. “A team of experts representing the Steering Committee remains in Athens and will be working with government officials on many aspects of the PSI.”

(Writing by Ingrid Melander; Editing by Dina Kyriakidou)

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DealBook: Talks on Greek Debt Are Halted

Charles Dallara, the head of the Institute of International Finance, represents Greece's private bondholders.Petros Giannakouris/Associated PressCharles Dallara, the head of the Institute of International Finance, represents Greece’s private bondholders.

LONDON — Talks between Greece and private sector creditors over a restructuring of the country’s crushing debt paused on Friday amid a continuing disagreement over how much of a loss banks and investors should take on their holdings.

In a statement, Charles Dallara of the Institute for International Finance, the bank lobby that represents private sector bond holders, said that discussions had “not produced a constructive consolidated response by all parties, consistent with a voluntary exchange of Greek sovereign debt.”

The statement came at the conclusion of talks between Mr. Dallara and the Greek finance minister, Evangelos Venizelos, in Athens on Friday.

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While people involved in the talks described it as a negotiating tactic, the disagreement is a reminder of how wide the gap remains between the two sides, even after months of discussions, and underscores how close Greece is to defaulting on its debt.

At issue, bankers and government officials say, is less the 50 percent haircut that investors would absorb with their new bonds and more the coupon or interest these new instruments would carry.

Evangelos Venizelos, the Greek finance minister.Petros Giannakouris/Associated PressEvangelos Venizelos, the Greek finance minister.

Investors are pushing for a higher interest payout to mitigate both their loss and the fact that their exposure to Greece will be lengthened considerable with the new bonds.

The International Monetary Fund and Germany, both of whom have become increasingly worried about Greece’s ability to service its debts as its economy continues to plummet, are pushing for a lower rate, which would ease Greece’s debt payments and force investors to take a bigger loss on their holdings.

As foreseen, the deal is expected to lower Greece’s debt to 120 percent of its gross domestic product by 2020 from about 150 percent currently. But the I.M.F. in particular has become pessimistic about Greece’s ability to recover economically and believes its debt burden must decrease at a faster rate.

Within the fund, as well as in Europe, there is a view that the private sector needs to pay a larger share. Europe’s sickly banks counter that they are in no position to take on more losses.

In its statement, the bank lobby said that “discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.”

The not-so-subtle message is that if Europe pushes too hard on this point, then the creditors can no longer accept the agreement as a voluntary one. This is important as an involuntary restructuring would be seen by creditors as a default and would trigger credit default swaps — a step Europe and Greece are trying hard to avoid.

One person involved in the discussions said that the move should be seen more as a negotiating tactic than a sign than a sign that Greece was going to default. The person, who spoke on condition of anonymity, said that the talks would resume Wednesday.

That may be so, but for every day’s delay, the stakes increase as Europe and the I.M.F. have said repeatedly that without a private sector deal, Greece will not get the 30 billion euros in bailout money that it needs to avoid bankruptcy.

Greece faces a critical 14 billion euro bond payment on March 20. A delegation from the I.M.F is due in Athens next week to start talks with the government on the progress or lack thereof in enacting major reforms and raising money via state asset sales.

The negotiations on the debt have been complicated by the increased influence of a bloc of investors, largely hedge funds, who have bought billions of euros of discounted Greek debt and have said they will not participate in a restructuring. They are betting that Europe will blink and give Greece its money, and because the deal would be voluntary, these holdouts would get their pay day.

With the breakup of the talks, and the increased threat of a default, these investors may well choose to participate in the deal — in the hopes of getting something as opposed to the very little they would get if Greece went bankrupt.

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European Finance Ministers Call Off Pre-Summit Meeting

With less than 24 hours before the summit meeting of government chiefs in Brussels, banking representatives and European officials were locked in negotiation over what losses banks should accept.  

The banks have taken a hard line and warned that the write-off of debts they are being asked to accept — of about 55 percent — could result in a default or similar shock to the financial system, something European officials are desperate to avert. That has prompted a search for so-called complementary measures which might help to sweeten the deal for the bankers.

Italy, meanwhile, has come increasingly under the spotlight as investors doubt the government’s commitment to reduce curb the country’s 1.9 trillion euro, or $2.6 trillion, debt.

European Union leaders want the Italian prime minister, Silvio Berlusconi, to present firm plans on growth and debt reduction in time for the meeting.

Italian news agencies reported late Tuesday that  Mr. Berlusconi had reached an accord with the Northern League,  his principal coalition partner. The league’s leader, Umberto Bossi, said earlier in the day that Mr. Berlusconi’s government could  fall over the issue of raising the standard retirement age to 67 from 65, a move Mr. Bossi opposed.

With the clock ticking, a senior German official, Jörg Asmussen, and a French counterpart, Ramon Fernandez, joined intensive discussions with the banks in Brussels.

Under one of about five plans being debated, Greek bonds might be swapped for those of much lower face value issued by the euro zone’s bailout fund, according to two officials briefed on talks, who added that the idea might make a write-down more attractive for the banks.

The Institute of International Finance, which represents the banks involved, intends to send its own proposal to European leaders on Wednesday, according to a person with direct knowledge of the negotiations. That would involve banks taking more than the 21 percent loss they had agreed to in July, in exchange for sweeteners that would help mitigate some of the additional loss, such as allowing banks to buy bonds from the bailout fund.

“It’s clear that circumstances have changed too much for the July 21 agreement to work at this point,” said the person, who spoke on condition of anonymity because the discussions are ongoing. “We are prepared to adjust to new circumstances within limits. The question is are the governments prepared to meet us halfway.”

Adding to the mood of anxiety, a meeting of E.U. finance ministers on Wednesday, which was to precede the second gathering in a week of European leaders, was abruptly canceled on Tuesday by the Polish government, which holds the bloc’s rotating presidency.

Though that was a recognition that the deal with the banks will not be ready by Wednesday morning, it did not mean that agreement was impossible later in the day, when the leaders meet, diplomats and officials said.

The summit meeting will still take place and “work on the comprehensive package of measures to curb the sovereign debt crisis” will continue there, the Polish statement said.

Those measures include a recapitalization of European banks and an expansion of the firepower of the euro zone’s 440 billion euro bailout fund, probably to more than 1 trillion euros. This will likely be achieved through two methods that are likely to run alongside each other.

The rescue fund, known as the European Financial Stability Facility, is expected to offer insurance against a portion of the losses on bond purchases. A separate mechanism is expected to be set up to purchase bonds, drawing in funds from the International Monetary Fund and other investors from the emerging world.

Though France is reluctant to bring other powers, like China, into the heart of the euro zone, it will probably have to overcome its reservations because of the gravity of the situation.

Jack Ewing reported from Frankfurt. Liz Alderman contributed reporting from Paris and Elisabetta Povoledo contributed reporting from Rome.

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I.H.T. Special Report: Global Agenda: Western Finance Bodies Face Challenges in Funding Arab Spring Countries

Governments and institutions like the International Monetary Fund and the European Investment Bank have been quick to offer financial help to Egypt, Tunisia and the other Middle Eastern countries making tentative steps toward democracy.

But whatever the motive behind the offers — benevolence, wanting to bolster Western-style governance or help Western businesses expand — the traditional model used by multilateral lenders looks increasingly unsuitable for the region and difficult to implement, analysts say.

“There is a potential contradiction in that the economic model that these countries need, and that is on offer, has been discredited,” said Mark Malloch Brown, former deputy United Nations secretary general. “The liberal economic programs that these countries tended to adopt in recent years were compromised by the regimes, which enriched themselves and their friends.”

Finding an economic model to replace crony capitalism is critical to addressing the region’s other pressing problems, which include high unemployment, budget shortfalls, high inflation, and a lack of investment.

The I.M.F. estimates that Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia all have unemployment rates of about 11 percent, barely changed over the past two decades. Youth unemployment on average exceeds 40 percent.

Egypt, Yemen, Tunisia and Syria are likely to experience recession this year as economic activity contracts following the uprisings, the Institute of International Finance said recently.

An I.M.F report in May said the external financing needs of oil-importing Middle East and North African countries would exceed $160 billion over the next three years.

This month leaders of the Group of 8 industrialized nations pledged $38 billion in new aid to help underpin the transition to democracy amid complaints that little of a $20 billion aid package promised in May had materialized. Cash-rich Arab states like Qatar, Kuwait and Saudi Arabia have also offered billions, as well as increasing their own spending to try to head off domestic unrest.

In a research report this month, Jean-Michel Saliba of Bank of America Merrill Lynch estimated that the oil-rich Gulf nations would spend $150 billion to accommodate domestic social pressures and in intra-regional fiscal transfers.

The I.M.F. has said it could provide $35 billion in loans to the region, and the World Bank in May announced plans to lend $6 billion over two years to Egypt and Tunisia.

Alongside the Gulf States, Europe may have a central role: It accounts for more than three-quarters of Tunisia’s exports of goods, tourism receipts, workers’ remittances and investment.

One tool of support would be the European Investment Bank, which has a mission to support stability and nation-building in the Union’s partner countries. At the start of the summer, Union members agreed that the E.I.B. could increase lending to the Middle East in a process expected to be ratified soon. That would give the bank nearly €6 billion in financing available for the region until 2013.

Over the summer, the E.I.B signed a €163 million loan to support road upgrades in Tunisia and a €140 million loan to help the Tunisian Chemicals Group, a major phosphates producer, build a fertilizer plant.

Egypt is to receive about half of its funds for the region, followed by Morocco, Tunisia and Jordan. The European Union is also offering Libya access to E.I.B. loans, should a new government seek assistance.

Another vehicle will be the European Bank for Reconstruction and Development, established in 1991 to help countries in Eastern Europe and the former Soviet Union make the transition to market economies and multi-party rule following the collapse of communism.

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Italy Borrowing Costs Hit 3-Year High in Bond Sale

LONDON — Italy managed to sell five-year bonds in an auction on Thursday but yields were at the highest level in three years, showing that some investors remained nervous about the sovereign debt crisis spreading across Europe.

The sale came just ahead of an informal meeting in Rome by officials from the European Central Bank, the European Commission and private lenders to discuss a second rescue plan for Greece.

Worries among some investors that the slow pace of European leaders in coming up with a solution for Greece’s ballooning debt has pushed up borrowing costs in recent days for other European economies, especially Italy and Spain.

Earlier doubts about whether the Italian prime minister, Silvio Berlusconi, and the finance minister, Giulio Tremonti, would agree on new austerity measures added to the uncertainty.

On Thursday, the Italian Treasury said it priced €1.25 billion, or $1.8 billion, of five-year bonds, the maximum it had earmarked for the sale, with a gross yield of 4.93 percent, up from 3.9 percent at a previous auction in June. It also sold a combined €3.7 billion of bonds with maturities of up to 15 years.

With Italy able to place the bonds, even though at a higher cost, some analysts said the focus is shifting back to whether European policy makers would be able to agree on a Greek bailout.

“The Italians got away with what they intended to do and it did initially help to stabilize the markets,” said Eric Wand a fixed-income strategist at Lloyds Bank Corporate Markets in London. “But the situation now is reverting back to European politics — and as politicians don’t seem to be in a desperate rush to get something out, the markets is starting to really get nervous.”

The Institute of International Finance, which represents finacial services companies, said that Charles Dallara, its managing director, had arrived in Rome Thursday for discussions with Vittorio Grilli, an Italian Treasury official who is also the chairman of a high-level European committee on economic policy.

An Italian Treasury official, speaking on customary condition of anonymity, said the meeting would focus on the involvement of private investors, such as banks and insurance companies, in a new Greek package and will give officials the chance to exchange opinions. No statement was expected after the meeting, the official said.

An I.I.F. spokesman, Frank Vogl, said the talks represented a chance for the I.I.F. to update European governments on the status of recent, intense negotiations among Greece’s main creditors about the scale and method of the private sector’s involvement in the next bailout. The talks would be focused solely on Greece and not any other euro zone country, he added.

European leaders on Wednesday put off a proposed summit meeting until next week to give themselves more time to settle disagreements over how to get private investors to share the pain in any future Greek bailout. Chancellor Angela Merkel of Germany argued that a package of necessary measures was not yet ready.

Greece’s credit rating was cut three levels to CCC by Fitch Ratings late Wednesday. The ratings agency cited uncertainties about a Greek rescue and the role of private lenders in such a rescue.

Italy is expected to push through a four-year austerity plan and win support for the measures from opposition parties this week.

The Italian deficit as a share of gross domestic product was less than half of that of Greece last year. But as investors become increasingly nervous about the possibility of containing Greece’s debt problems, borrowing costs for Italy have increased.

Matthew Saltmarsh contributed reporting. Gaia Pianigiani contributed reporting from Rome.

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