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Greece tries to revive debt relief deal

By Nicholas Paphitis

Associated Press

Published: Thursday, Jan. 26 2012 4:50 a.m. MST

A pedestrian passes a carpet shop's window with signs reading ''Sell out due crisis'' in Athens, Thursday, Jan. 26, 2012 Greece's prime minister will hold new talks with representatives of the country's private sector creditors on a crucial euro100 billion ($129 billion) debt writedown.

Thanassis Stavrakis, Associated Press

ATHENS, Greece — Greece will try to revive a debt relief deal needed to avoid a potentially disastrous default when it resumes talks on Wednesday with its private creditors in Athens.

Greek Premier Lucas Papademos will meet with Charles Dallara, managing director of the Institute of International Finance, a banking lobby, and Jean Lemierre, senior adviser to the chairman of French bank BNP Paribas.

The €100 billion ($129 billion) private debt writedown is a vital condition of a new bailout for Greece, which has been relying on international rescue loans since May 2010.

The recession-plagued country is at the heart of Europe's debt crisis, and fears that it could become the first of the 17 euro states to default have roiled global markets over the past two years.

If the writedown fails, Greece will be unable to repay a €14.5 billion ($18.77 billion) bond on March 20. If that happened, it could then be forced to leave the euro, which would be disastrous for the country and destabilize the rest of the region.

Under the deal, banks and other private sector investors would swap their Greek government bonds for new ones with half the face value, longer repayment deadlines and potentially lower interest rates.

Following intensive talks in Athens last week, Dallara said private bondholders had made the "maximum" offer that would ensure the bond swap is voluntary, as initially intended, warning that the alternative was a Greek default. But eurozone finance ministers later increased the stakes, urging bondholders to accept a lower interest rate — well below 4 percent on average — on the new bonds.

The IIF said in a statement that the goal of the talks is to agree on all outstanding legal and technical issues as soon as possible.

Papademos' interim coalition government is hoping to conclude the negotiations by the end of this week, despite disagreements over the terms of the deal, which is intended to make Greece's borrowings sustainable in the long term by lowering the debt burden to 120 percent of GDP by 2020 from 160 percent in 2011.

"We hope the process ends quickly and we are able to implement the agreement, because the (writedown) must take place and the (new international bailout) must be signed if we want to keep financing the economy," government spokesman Pantelis Kapsis said.

"Developments could potentially be very rapid, and a series of issues could start to be concluded in a matter of days," he told private Flash radio.

Key members of the IIF had met in Paris on Wednesday to decide how to proceed after the eurozone countries demanded lower interest rates on the new bonds.

The eurozone ministers have taken a tough stance because whatever debt relief Greece doesn't get from the investors will have to come from them and the International Monetary Fund, the country's bailout rescuers.

"To ensure debt sustainability for Greece, it is essential that a new program be supported by a combination of private sector involvement and official sector support," William Murray, an IMF spokesman, said late Wednesday.

Murray said the IMF has not asked the European Central Bank, which holds more than €40 billion ($52 billion) in Greek government bonds, to play any specific role in relieving Greece's debt pile. The ECB, as a public sector holder of Greek debt, is protected from any writedown.

"The Fund has no view on the relative contribution of private sector involvement and official sector support in achieving" the target of cutting Greece's debt-to-GDP ratio to 120 percent, Murray said.

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