Eurogroup rejects PSI deal
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Eurozone finance ministers on Monday gave the thumbs-down to a plan for private sector involvement (PSI) in the writedown on Greek debt.
The Eurogroup meeting in Brussels heard Finance Minister Evangelos Venizelos' presentation of the PSI deal agreed with the private bondholders' chief negotiator Charles Dallara in Athens before the latter walked out of the talks on Saturday.
"We told him [Venizelos] to continue the negotiations [with Dallara] until the interest rate comes down below 4 percent," Eurogroup chairman Jean-Claude Juncker told a news conference in Brussels late on Monday.
Juncker was referring to the average interest rate (annual coupon) of the new 30-year bonds that will be issued to bondholders after the haircut of 50 percent on the face value of their portfolio.
The PSI bond swap was a precondition for a second EU-IMF bailout worth 130bn euros agreed at the EU summit of October 26.
Venizelos had agreed with Dallara to a rate of 4.25 percent before Athens was told that the EU would not accept anything above 3.5 percent during a euro working group teleconference with PSI negotiators on Saturday.
At a rate of 4 percent or more, "even with a 100 percent PSI participation [of bondholders] the Greek debt won't fall below 150 percent in 2020," Juncker said, referring to an IMF debt sustainability report which said that any PSI deal must ensure that the Greek debt-to-GDP ratio reaches 120 percent in 2020.
And since there is no chance of a voluntary participation of all private bondholders in any PSI deal at a level of interest rates demanded by the EU, the Eurogroup veto on the latest Athens compromise with Dallara effectively sets the stage for a Greek default when a 14.4bn euro matures on March 20.
Without ruling out this ominous possibility, Juncker stressed that "it is clear the Greek [bailout] programme has been derailed because the criterion for our decisions was that the debt should reach 120 percent in 2020." To get the programme back on track, "Greece must first implement the prior actions," Juncker told reporters. "If the debt is not sustainable, it has to be made sustainable."
The hardening of the EU's stance is obviously testing the ground for a Greek default since the earlier deadline for a final PSI deal by January 30 - the date for the next EU summit - will be missed.
But the troika of Greece's official creditors won't miss the opportunity to use the threat of default to extract full compliance to harsher austerity measures from the coalition government in Athens.
This was also reflected in a working paper by the IMF resident representative in Athens, Bob Traa, demanding deep cuts in auxiliary pension schemes and the scrapping of the Christmas, Easter and summer bonuses (the so-called 13th and 14th salaries) for private sector employees.
A copy of the document was presented during the Antenna TV morning programme on Monday.
Government officials are now saying the negotiations could extend into mid-February.
"Intensive consultations with the private sector will continue ... aiming to submit an official offer by February 13," one finannce ministry official told Reutersw on condition of anonymity.
source athensnews.gr
May 19, 2012 - 02:11
