Greece, IMF expect debt deals soon

By Elena Becatoros

Associated Press

Published: Wednesday, Feb. 1 2012 12:00 a.m. MST

Greek Finance Minister Evangelos Venizelos speaks during a news conference in Athens, on Tuesday, Jan 31, 2012. Venizelos and Health Minister Andreas Loverdos announced measures to control runaway public spending on health, and announced collaboration in an upcoming leadership election at the majority Socialist party, expected in mid-March. The Socialists and main rival conservatives are backing a coalition government that is expected to call a general election in late April.

Petros Giannakouris, Associated Press

Enlarge photo»

ATHENS, Greece — Greece and the IMF said Wednesday that negotiations for landmark debt deals will be concluded in a "matter of days," raising hopes that the country will dodge a disastrous default in the spring.

Greece is locked in two sets of talks— one with private creditors to have them take losses on their bondholdings and the other with its international bailout rescuers to receive new loans.

"We are at a crucial point in developments. In the coming days, the agreements must be completed" for the bond swap and a second €130 billion ($171 billion) bailout package, government spokesman Pantelis Kapsis said.

Debt inspectors from the European Commission, European Central Bank and the International Monetary Fund, known as the troika, are in Athens for talks on the second rescue package, which is tied to an agreement with private creditors to accept losses on Greek bonds they hold. The success of the bond deal, however, also depends on the outcome of the bailout talks.

The bond swap, known as the Private Sector Involvement, or PSI, will see private creditors swap the bonds they hold with new ones worth half their original face value, longer repayment times and lower interest rates. They will also get a €30 billion cash sweetener — to be taken from the €130 billion bailout — for accepting the deal. Once secured, the PSI will cut €100 billion off Greece's national debt.

Overall, the investors participating in the deal will face a loss on their bondholdings of more than 70 percent, Finance Minister Evangelos Venizelos said in a Parliament committee meeting Tuesday night. The official offering of the new bonds will come by Feb. 13, Venizelos said.

"Constructive discussions continue on the voluntary debt exchange as other matters move forward," the Institute of International Finance, a bank lobby that is representing private bondholders in the negotiations, said in a statement Wednesday. "We hope that the various elements of the Greek package will come together in the days ahead."

Greece is running out of time, as it faces a €14.5 billion bond redemption on March 20 that it cannot afford to pay without additional help. A default would spell disaster for the country and destabilize European and global markets.

Both deals will need the agreement of the heads of the three political parties in Greece's interim coalition, Kapsis said, and Prime Minister Lucas Papademos was to call the party heads to a meeting to sign off on them and required austerity measures.

Chief IMF inspector Poul Thomsen also said a deal was close, but pressed the recession-plagued country to lower employment costs and even slash the minimum wage to make the economy more competitive.

"It's a matter of days," Thomsen was quoted as saying by the Athens daily Kathimerini. "The discussions for the (new) program will be concluded very soon."

Thomsen insisted wages in Greece remain too high and urged the government to consider cutting the minimum wage of €750 ($988) gross pay per month.

Greek unions and employers are to resume negotiations on Thursday in an effort to cut labor costs, but both sides are already in agreement that the minimum wage and basic private sector pay should not be affected, arguing such a move would only deepen the recession.

The EU statistics agency Eurostat on Tuesday revealed that unemployment in December in Greece rose to 19.2 percent, the second highest rate in the eurozone after Spain, which stood at 22.9 percent.

The recession and repeated rounds of austerity that have seen salaries and pensions cut have also taken a toll on consumer spending. The National Confederation of Hellenic Commerce warned on Wednesday there would soon be "conditions of absolute poverty in Greece."

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