IIF says weeks away from concluding Greek debt deal

The private sector’s lead negotiator on a deal to halve the nominal value of holdings of Greek government bonds said on Wednesday it was still weeks away from completion and that he was confident in working with new political leaders in Athens.

“It will take some weeks to reach an agreement, but I’m hopeful that we can still implement this for the future of Greece, because it’s an important step to alleviate the burden of Greece and also stabilise Europe more generally,» Charles Dallara, managing director of the Institute of International Finance (IIF) told Reuters.

A new coalition government in Athens will be announced later on Wednesday, the Greek prime minister’s office said.

Earlier on Wednesday, party sources said that a plan for former European Central Bank deputy head Lucas Papademos to lead the new government had run into trouble, prolonging a political hiatus as the country tries to avert bankruptcy.

“I still feel quite confident as the new government settles in Greece that we can have… I think we will reach an agreement on the details of the new debt, that’s the key,» Dallara said, speaking on the sidelines of an IIF conference in Beijing.

Greece badly needs the bailout to be agreed in order to release 8 billion euros of emergency funds before December, when it faces bankruptcy if it cannot meet big debt repayments.

By contrast, the European Union badly needs to settle the Greek problem fast to persuade markets it can handle another crisis brewing in the much bigger Italian economy.

If Greece pushes through its eurozone bailout, it will lower its debt but not only by exercising budget discipline: the bailout envisages a bond swap that will halve the value of banks’ holdings of Greek government debt.

The deal with the banks would reduce Greece’s debt ratio to 120 percent of its gross domestic product by 2020, but key details determining the cost for banks — such as the coupon and the discount rate — are still being negotiated.

There are 206 billion euros ($282 billion) of Greek government bonds in private-sector hands, and a 50 percent reduction would reduce Greece’s debt burden by some 100 billion euros. Its debt-to-GDP ratio now stands at 160 percent.

The IIF has said previously that more than 90 percent of banks would take part in the deal it is brokering, but Dallara declined to be as specific, saying only that he expected «strong participation», reiterating an earlier comment.

“We will make a lot of progress in the next few weeks, but unfortunately the final offer is also dependent in part on the new three-year programmme being developed between the European Commission, the IMF and Greece,» Dallara said.

That process may take some weeks because the new government has to sit and engage with the International Monetary Fund, he said, adding that technical and political discussions would go on side-by-side.

“We will move forward on the technical and financial side as the government moves forward with its partners in Europe and IMF on the political and policy end of this.”