Tuesday, January 24, 2012

EU Calls for More Bondholder Concessions as Greece Seen Going ‘Off Track’

Bloomberg
January 24, 2012

European finance ministers balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the two-year-old debt crisis.

Euro governments stood by an October offer of 130 billion euros ($170 billion) for a second Greek aid package. Officials want to fill a deeper-than-expected hole in the nation’s finances by saddling investors with a lower interest rate on exchanged bonds.

Brinkmanship over Greece clouded progress toward new fiscal rules and a beefed-up rescue fund, denting newfound confidence in the anti-crisis strategy and threatening to overshadow next week’s summit of European leaders.

“It’s obvious that the Greek program is off track,” Luxembourg Prime Minister Jean-Claude Juncker told reporters early today after chairing a meeting of European finance ministers in Brussels. He called on creditors to drop demands that new bonds carry coupons averaging 4 percent.

The stalemate is reminiscent of October’s bargaining over bond losses and risks disrupting the Jan. 30 summit. An accord with bondholders is key to a second financing package for the cash-strapped country, which faces a 14.5 billion-euro bond payment on March 20.

Efforts to shore up Greece, the trigger of the crisis, were flanked by headway on a German-inspired deficit-reduction treaty and indications that a cap on rescue lending might be boosted to 750 billion euros from 500 billion euros.

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