BRUSSELS — Greece's finance minister indicated Tuesday that he still believes his country will be able to reach a deal with private bondholders to cut its massive debt, despite tougher terms set by its eurozone partners.
Athens is trying to get its private creditors — banks and other investment firms — to swap their Greek government bonds for new ones with half their face value, thereby slicing some €100 billion ($130 billion) off its massive debt. The new bonds will also push the repayment deadlines 20 to 30 years into the future.
But Greece and representatives of the private creditors have been unable for weeks to agree on the interest rate those new bonds would carry. A high interest rate could buffer losses for the investors, but would also require the eurozone and the International Monetary Fund to put up more than the €130 billion in rescue loans they promised in late October.
After negotiations that dragged deep into the night, eurozone finance ministers took a firm stand on the debt restructuring, capping the average interest rate over the lifetime of the new bonds "clearly below 4 percent," according to Jean-Claude Juncker, the Luxembourg prime ministers who chaired the meeting. For the period until 2020, the average rate will be limited at less than 3.5 percent, he added.
Those caps are far below average interest rates of more than 4 percent demanded by the Institute of International Finance, which has been leading the negotiations for the private bondholders.
They underline that the eurozone and the IMF are unwilling to increase new rescue loans above the promised €130 billion, even though Greece's economic situation has deteriorated since then.
After already granting Greece a €110 billion bailout in May 2010, the eurozone and the IMF are limiting their exposure to the country, which has repeatedly failed to hit budget and reform targets required in return for the financial aid.
But the caps will also seriously test the willingness of private bondholders to agree to a debt deal voluntarily. IIF head Charles Dallara over the weekend had characterized the bondholders' most recent offer as the best possible proposal.
Greek finance chief Evangelos Venizelos was nevertheless confident that the two sides could find common ground.
"We have the green light from the Eurogroup to close the deal with the private sector in the next few days," Venizelos said in Brussels.
The alternative to a voluntary deal would be to force losses onto investors — a move that the eurozone has so far been unwilling to make. Officials fear that a forced default could trigger panic on financial markets and hurt bigger countries like Italy, Spain or even France.
But Dutch Finance Minister Jan Kees de Jager has said that a voluntary deal was not a must and that getting Greece's debt down to a sustainable level was a bigger priority.
"Greece and the banks have to do more in order to reach a sustainable debt level," he told reporters Tuesday as he arrived for a second day of meetings with his European counterparts. "We have to await the discussions about that because a sustainable debt level is absolutely a precondition for the next (rescue) program."
Greek stocks opened lower Tuesday, shedding a collective 1.7 percent one day after optimism on the debt writedown deal sparked a 5 percent rally.
Meanwhile, updated budget execution figures released by the Greek Finance Ministry showed that despite massive spending cuts, the country's fiscal deficit for 2011 was actually higher than in 2010.
Last year's fiscal deficit hit €21.72 billion ($28.27 billion) — €270 million ($350 million) more than in 2010.
Revenues were €910 million ($1.18 billion) below target, but the ministry said this was offset by higher-than-anticipated spending cuts of €896 million ($1.16 million).
These figures are on a cash basis, and exclude some categories of spending taken into account in calculating the final budget deficit for 2011 — which Greece has pledged to cut to about €20 billion ($26 billion).
Nicolas Paphitis in Athens, Greece, contributed to this story.