Friday, January 13, 2012

Debt talks falter, Greeks warn of disaster

Reuters
January 13, 2012

Talks between Greece and its creditor banks to slash the country's towering debt pile broke down on Friday, with the Greeks warning of "catastrophic" results if a deal to swap bonds is not reached soon.

The two sides are divided over the interest rate Greece will end up paying, which determines how much of a hit banks take.

Athens needs an agreement, seeing creditors voluntarily giving up a lot of their promised returns, to reduce its debt to more sustainable levels and convince the European Union and International Monetary Fund to keep lending it cash.

Both sides appeared to be digging in their heels in what analysts said looked like a high stakes poker game in a final attempt to convince private bond holders to take some losses to avoid a disorderly default that could threaten the entire euro zone.

It would come via a swap between old bonds teetering on the brink of default and new ones for which banks would take a big write-down. Without a deal, banks could lose even more and Greece would be threatened with default and possibly euro zone ejection.

"Discussions with Greece and the official sector are paused for reflection," said the Institute of International Finance (IIF), which leads talks for private bond holders.

"Unfortunately, despite the efforts of Greece's leadership, the proposal put forward ... has not produced a constructive consolidated response by all parties."

Greek negotiators earlier warned that failure to reach a deal would be disastrous for Europe.

"Yesterday we were cautious and confident. Today we are less optimistic," said a source close to the Greek task force team in charge of negotiations.

"It is important to remind all parties that the consequences of failure would be catastrophic for Greece and the Greek people, Europe and Europeans," the source said.

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