Greece Continues Debt Relief Talks As March Bond Repayment Deadline Looms
ATHENS, Greece — Greece was locked in a twin effort Friday to placate its creditors, seeking to secure a crucial debt relief deal with private investors while also tackling pressing demands from its European partners and the IMF for deeper reforms.
Failure on either front would force the recession-bound country to default on its debt in less than two months, pouring new fuel on the fires of Europe's debt crisis. In that case, Greece would also likely leave the 17-member eurozone, which would bring disaster on the country and destabilize the rest of the eurozone.
Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos have resumed talks with representatives of international banks and other private institutions that hold euro206 billion ($270 billion) in Greek government bonds, at the end of a second week of tortuous talks on halving the country's privately-held debt load.
Speaking at the World Economic Forum in Davos, Switzerland, European Monetary Affairs Commissioner Olli Rehn said he hoped a deal would be reached "if not today maybe by the weekend."
Greek government spokesman Pantelis Kapsis said it was "obvious" that progress has been made. "We hope to conclude as soon as possible," he said in an interview with Vima radio.
Despite several days of intensive talks, an agreement has not so far been reached, mainly due to disagreements on the interest rate cut private investors must accept on the new lower-value Greek bonds with longer maturities that will replace the ones they now own. The writedown, imposed on bondholders by Greece's international bailout creditors, is meant to reduce the country's debt-to-GDP ratio from 160 percent last year to 120 percent in 2020.
It is also a vital condition of a second bailout for Greece, which has been relying on euro110 billion ($145 billion) in international rescue loans since May 2010.
Debt inspectors from the International Monetary Fund, European Central Bank and European Commission, known collectively as the "troika," are currently in Athens to negotiate details of the second bailout, worth euro130 billion ($171 billion).
On Monday, the troika presented a list of proposed reforms that were leaked in Greek media, calling for new spending cuts targeting the military, health and redundant state entities, public sector sackings, tax reforms, privatizations and deregulation of protected professions.
Greece has already imposed tough austerity measures, including deeply resented salary and pension cuts, repeated rounds of tax hikes and labor reforms. But it has also promised reforms it diluted or never implemented, while frequently missing its fiscal targets.
"We've had enough announcements, now the government in Athens must act," German Finance Minister Wolfgang Schaeuble told the German daily Stuttgarter Zeitung. "Only then can we talk about a second program."
In a statement he released Friday, after negotiations with the "troika" and ahead of the talks with the private creditors, Venizelos claimed that "we are just a step before the conclusion of negotiations (on the debt writedown)," and added that both negotiation tracks must finish within the next few days. "There is going to be no renegotiation once the (second bailout) is agreed upon," he said.
"The negotiation is difficult," Kapsis told private Skai TV. "I don't want to create the illusion that everything is going well and that everything is easy. It is a very difficult negotiation."
Kapsis said decisions on the new measures would be taken in the next few days, and warned without further cutbacks the private debt writedown – which will be partly funded by the second bailout – is off the cards.
"The issue of spending cuts is immediate as the (2011) budget has a euro2 billion shortfall and there is a need for some additional cutbacks," he told Vima radio. "These actions must take place for the (bond swap) to materializes. ... They are two parallel procedures."
But Kapsis argued that troika demands for 150,000 job losses by 2015 in the public sector – where workers have guaranteed jobs for life – can be achieved through attrition and a hiring freeze.
The leaked troika proposals also called for Greece to sell "two or three large companies" by the end of June. Kapsis said the privatization process "is a real problem."
"It is a difficult period to find investors who will come and place money in Greece," he said. The program is severely behind schedule: Supposed to raise euro50 billion by 2015, it has so far drawn in a paltry euro1.56 billion.
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Derek Gatopoulos and Demetris Nellas in Athens, Pan Pylas in Davos, Switzerland, and Geir Moulson in Berlin contributed.
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NICHOLAS PAPHITIS and ELENA BECATOROS 01/27/12 01:52 PM ET Associated Press