Olli Rehn, European commissioner responsible for economic and monetary affairs, said on Friday that talks with representatives of holders of some €200bn of Greek bonds were close to a deal.
Speaking on a panel with the French and German Finance ministers at the World Economic Forum in Davos, Mr Rehn said: “We’re just about to close a deal on private sector involvement between the Greek government and the private-sector community. Preferably, still in January rather than February.”
Greek premier Lucas Papademos and finance minister Evangelos Venizelos held talks on Thursday night on an updated debt restructuring proposal, amid rising optimism that a deal could be reached ahead of Monday’s European Union summit.
According to people with knowledge of the proposal, the co-heads of the bondholders’ committee negotiating with Greece, Charles Dallara and Jean Lemierre, could make concessions on interest rates for new bonds that would mean higher losses for private investors, but which could be recouped if the country returns to strong growth.
A statement issued later said discussions focused on legal and technical issues “and some progress was realised”.
“The next three days will be very crucial for the future in three years,” said Mr Rehn of the talks which continue on Friday.
“We need to have a sustainable solution for Greece,” Mr Rehn said but added private sector involvement planned in the Greek rescue “won’t be applied to any other country of the euro zone.”
A lower interest rate on long-term bonds would allow Greece to reduce its ratio of debt to gross domestic product from 160 to 120 by 2020, making its debt viable, according to the International Monetary Fund. But it would also impose net present value losses above the 70 per cent previous ceiling set by private investors.
One Athens banker said: “An agreement that bondholders could accept appears close, provided the extra official funding comes through.”
Josef Ackermann, Deutsche Bank ‘s chief executive who also chairs the private bondholders’ committee, said at Davos: “I’m confident that we can get our act together in Greece and avoid a major contagion, but that is still a very open question.”
In Berlin, Angela Merkel, the German chancellor, said the Greek talks were “on quite a good path”, but warned that Greece would have to spell out “its additional obligations” before any deal could be done.
Officials in Berlin say that European leaders will need a full report by the “troika” officials representing the IMF, the European Commission and the European Central Bank before finalising the rescue. They doubted the report would be ready in time for Monday’s summit.
Greece’s coalition government still has to sign up to harsh new austerity measures under a new medium-term fiscal programme before funds from a €130bn second bail-out are disbursed. Talks were set to continue with the visiting officials on Friday, amid disagreements over further wage and pension cuts and measures to make the labour market more flexible.
“We are preparing a package which will pave the way for a sustainable solution for Greece,” Mr Rehn told Reuters news agency in an interview.
He declined to say how big the funding shortfall would be, although he insisted that increased taxpayer support for Greece would be “not anything dramatic”.
Both the IMF and European policymakers have agreed that Greek government debt must be reduced to 120 per cent of gross domestic product by 2020 to be sustainable.
In Germany – the principal financial guarantor of the eurozone rescue fund which will provide most of the government support for Athens – there remains strong resistance to any increase in public funding for the bail-out. The Netherlands and Finland are also sceptical.
Officials in Berlin say that if there is any question of increased funding, the terms of the rescue package will also have to be reviewed.
In Davos, Jyrki Katainen, the Finnish prime minister, said increasing the bail-out money would not help solve the debt crisis.
“I don’t believe fresh money on the table is the only possible solution,” Katainen said in an interview on CNBC. “If the money is needed, then we need to talk about it, but it’s very difficult to find any fresh money. It’s politically difficult, but before we see how well the countries can behave there is no need for fresh money.”
Canada’s finance minister Jim Flaherty said on Thursday that Europe could solve its debt crisis without new IMF aid that would come at the expense of much poorer citizens in other countries.
“These are the wealthiest countries in the world, and you can’t expect a Chinese peasant earning $200 a year to contribute to bailing out Europe,” Mr Flaherty told Bloomberg in Davos. “It doesn’t make any sense.”
Last week the IMF asked its member countries for an extra $500bn in firepower to combat the world’s spreading fiscal emergencies.
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