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Greece predicts private debt write-off deal by weekend

A Greek one euro coin
Image caption The Greek government has said that it will have to abandon the euro if it fails to secure new loans

Greek Finance Minister Evangelos Venizelos says his country might be able to reach a deal with private creditors by the end of the week.

Talks with banks and other investors have resumed in Athens.

The talks stalled last Friday as the two sides failed to reach agreement on loan write-offs of about 50%.

Greece needs a deal if it is to receive the next tranche of bailout funds, which it needs to meet its next debt repayment deadline in two months.

Officials from the European Commission, International Monetary Fund and European Union are also due in Athens this week to assess whether or not to release these funds.

Greek Finance Minister Evangelos Venizelos said: "Our estimation is that we might have an agreement before the end of the week."

Debt repayment

European leaders agreed in principle last year that private lenders would voluntarily write off 50% of their loans to Greece, but private creditors still need to agree to the deal.

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Media captionMyles Bradshaw, a portfolio manager at Pimco, says Greece needs to look at "an alternative economic plan"

They are being represented in negotiations with Athens by the Institute of International Finance (IIF).

Reports have suggested that a small number of hedge funds are blocking the deal, either to try to force a reduced write-off or to trigger a default, against which they are insured.

Without the bailout money, the Greek government could run out of cash and be forced to default on its debts.

The country faces a 14.4bn euro ($18.4bn, £12bn) debt repayment in March.

Some analysts believe that, if Greece did default, the country would be forced to leave the eurozone.

Default risk

Athens and the IIF will not only discuss the size of the write-off, but also the rate of interest on the existing loans, which will be renegotiated and rolled over into new bonds as part of any agreement.

"I think the negotiations have been around what is the right interest payment for the new debt that people are going to receive, and this is where there is a difference in what Greece is willing to pay and what bond holders are willing to accept," Takis Georgakopoulos from JP Morgan told the BBC.

He said there were three possible outcomes to the talks.

First, the two parties reach agreement. Second, there is no agreement and Greece unilaterally decides what to pay back to its creditors, an option that was openly discussed by Greece's Prime Minister Lucas Papademos in an interview with the New York Times earlier this week. Third, there is no agreement and Greece defaults on its debts.

He said he was "optimistic" that an agreement could be reached given the far-reaching consequences of the last two outcomes.

Paul Mylonas from the National Bank of Greece said he believed the two parties "were very close to a deal".

However, even if agreement is reached, there is no guarantee that all bond holders will sign up, analysts said.

"I think we will get a breakthrough, because the people at these talks are banks that have a large systemic stake in the European financial system," said Myles Bradshaw at Pimco, the world's largest bond trader.

"But just [because] we have a conclusion to these talks doesn't mean we'll get the volume of bonds repackaged that the Greek officials would like, because the package of terms has to go out to other bond holders and there are lots of investors out there who may not want to participate in these bond swaps."

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