PSI talks to continue as clock ticks

Time is running short to reach a deal on a voluntary debt exchange for Greece, bank lobby the IIF warned on Thursday after crunch talks with Greece’s prime minister.

Negotiations between Athens and its creditors, which have dragged on for months, have entered the final stretch ahead of a major bond redemption in March. They are scheduled to continue in the Greek capital on Friday.

“A range of issues were discussed and some key areas remain unresolved. Discussions will continue in Athens tomorrow, but time for reaching an agreement is running short,» the Institute of International Finance said in a statement.

“It is essential in order to finalize the voluntary PSI agreement that support be given by all official parties in the days ahead,» the IIF said.

Greek officials had sounded more optimistic earlier, describing the two-hour meeting between Charles Dallara ? the head of the IIF bank group who is negotiating on behalf of all private sector creditors – and Greece’s prime minister and finance minister as «interesting» and «creative».

“I’m cautious and very confident after this two-hour meeting,» Finance Minister Evangelos Venizelos said in a statement.

What is not clear is whether there will be sweeping take-up of the bond swap by Greece’s private creditors or whether it will leave a hole in the second bailout package which has to be filled by fellow euro zone governments.

The swap aims to cut Greece’s debt burden from 160 percent of the nation’s annual output to 120 percent by 2020 and erase about 100 billion euros from the country’s debt load of over 350 billion euros.

Banks have agreed to a «voluntary» 50 percent write-down on Greek debt holdings but the talks have been complicated by demands for further concessions, which has made it less attractive for some investors to take part on a voluntary basis.

Speculation has centred on whether that means euro zone governments would be forced to stump up more cash to save Athens, something that would be deeply unpopular in Germany and other northern euro zone countries.

IMF chief Christine Lagarde is also said to have warned Europe that Greece’s economic prospects are deteriorating and the European Union will either have to put up more money to rescue Athens or debt holders will have to stomach steeper losses.

Asked to explain why Lagarde was discussing the possibility of Greece needing additional funds, Deputy Finance Minister Filippos Sachinidis said that could depend on the level of participation in the bond swap scheme.

“If the percentage of participation is not, for instance, 100 percent, then Greece may need further support from the side of our partners,» Sachinidis told Skai radio.

The talks cover the gamut of details, including the coupon rate, maturities and the option of introducing a collective action clause (CAC) that would force all creditors to sign up to the bond swap if a clear majority had voluntarily done so.

Three senior euro zone sources said on Thursday that Athens could impose retroactive collective action clauses to force creditors to sign up to the bond swap.

The clause may be required because sources say hedge funds who have picked up Greek debt are intent on staying out of the bond swap deal. They either prefer letting the country go under,

which would trigger the credit insurance they have bought, or hope to get paid out in full if enough others sign up.


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