European leaders maintained pressure on Greece to accept terms demanded by
international lenders during a weekend of talks to avert a financial
Interim Greek Prime Minister Lucas Papademos struck a tentative
deal with party leaders to boost economic competitiveness and extend spending
cuts after euro-area finance chiefs told them an increase in the 130 billion euro
($170 billion) aid package wasn’t forthcoming.
“If we determine that it’s
all going wrong in Greece, then there won’t be a new program – and that means in
March you’ll have a declaration of bankruptcy,” Luxembourg’s Jean-Claude
Juncker, who chairs euro finance meetings, told Der Spiegel
magazine in an
interview published Sunday.
The effort to keep Greece from tumbling into
default presents, what Deutsche Bank AG CEO Josef Ackermann this weekend called,
a “make or break” moment. While Greek leaders reached their framework agreement
yesterday, New Democracy leader Antonis Samaras said he would “fight” demands
made by the so-called troika of international creditors that could deepen a
The leaders in Athens will meet today aiming to complete an
accord as international creditors imposed an 11 a.m. deadline in Athens for a
Greek Finance Minister Evangelos Venizelos told reporters
February 4 that negotiations in Athens for more funding hung “on a razor’s
In Paris, German Chancellor Angela Merkel and French President
Nicolas Sarkozy meet Monday for a joint Cabinet meeting.
The euro fell,
losing 0.5% to $1.3087 as of 2:15 p.m. in Tokyo. Still, the Greek drama came
amid the backdrop of signs that the global economy is improving and European
Central Bank lending has staved off a financial crisis. The yield on Germany’s
benchmark 10-year bond rose 8 basis points to 1.93% last week, while the yield
on Greek 10- year bonds fell 18 basis points to 34.19%.
With Greece at
stake, focus over the weekend turned to a race to clinch agreement on a plan
that’s been in the works since July, with talks between international monitors
and Greek officials running in parallel with discussions among Papademos’s
coalition members and Greece’s government and its private
Attempts to untie the Greek knot have overshadowed progress by
EU leaders in setting up a new regime of budget rules and Italian Prime Minister
Mario Monti’s success in pushing through budget cuts.
bonds rose for a fourth week last week, the longest run in two
Open questions involve how much more aid Greece needs, how much
more austerity is required, and how to involve the ECB in the debt swap.
Papademos faces a 14.5b-euro bond payment on March 20, and general elections as
soon as April.
Venizelos had said that everything needed to be completed
by yesterday, in advance of a meeting of euro-area ministers scheduled for
A formal offer for the debt swap must be made by February 13
to allow all procedures to be completed before the March 20 bond comes
“The Greek negotiations are getting down to the wire with probably
no more than one or two weeks left to get all the agreements in place if we are
to avoid a messy default in March,” Erik F. Nielsen, Uni- Credit’s chief global
economist, said in a note to clients yesterday.
The rescue blueprint
includes more than 70% losses for bondholders in a voluntary debt exchange and
loans that will probably exceed the 130b. euros now on the
“We are in a make-or-break situation and Greece plays a very
important role – and if we find a solution in the next few days, I think we’re
on the right track,” Deutsche Bank’s Ackermann told a panel on February 4 in
Munich. Ackermann, who said letting Greece fall would open a “Pandora’s box,”
was due to fly to Athens as talks continued over the swap involving Greek debt
with a face value of about 200b. euros.
Meanwhile, the ECB is considering
using its bond holdings to bolster Greece’s next rescue program and support
efforts to contain the sovereign debt crisis, three euro-region officials said.
The ECB has purchased 219b. euros of debt-strapped nations‚ bonds since 2010 and
between 360b. euros and 55b. euros are invested in Greek sovereign debt,
according to estimates by Barclays Capital and UBS AG.
meetings over the weekend with members of the so-called troika – the European
Commission, the ECB and the International Monetary Fund – over what the country
has to do to receive more funds.
Greece has lagged behind budget targets
set when it won an initial, taxpayer-funded rescue of 110b. euros in May 2010,
prompting euro-area threats to cut off aid and hastening a German push to make
bondholders contribute. The country’s economy shrank 6% last year, according to
the latest IMF estimates, the budget deficit is still close to 10% of GDP and
unemployment is around 18%.
The lead negotiators of the creditors‚
steering committee working on a debt accord with Greece, Charles Dallara,
managing director of the International Institute of Finance, and Jean Lemierre,
a senior adviser to the chairman of BNP Paribas SA, returned to Athens this
weekend to continue talks.
Ackermann is the chairman of the group, based
in Washington, which has more than 450 financial firms as members and is
representing private creditors in the talks. Those talks are happening in
parallel with those with the troika, Venizelos said February 4 “but that’s now
the easiest part of the process.”
Creditors are prepared to accept an
average coupon of as low as 3.6% on new 30-year bonds in the exchange, said a
person familiar with the talks, who declined to be identified because a final
deal hasn’t been struck yet.