Greek debt restructuring talks collapse

By Peter Spiegel in Brussels and Kerin Hope in Athens

Talks over Greece’s debt restructuring collapsed on Friday, an unexpected breakdown that makes it increasingly likely Athens will become the first government of a developed country in more than 60 years to suffer a full-scale default on its debt. In a statement, lead negotiators for Greek bondholders said that the latest offer made by Athens “has not produced a constructive consolidated response from “all parties” – a clear reference to International Monetary Fund conclusions that bondholder losses must be increased significantly or a second Greek bail-out would have to be bigger than the agreed €130bn.

Government negotiators have been pushing for interest payments that would make the new bonds worth even less than the 50 per cent “haircut” in the bonds’ face value, which has led to a revolt among some debt holders involved in the talks. “Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach,” said the statement, put out by Charles Dallara, managing director of the International Institute for Finance, and Jean Lemierre, of BNP Paribas, who have been negotiating on behalf of banks and other financial institutions holding Greek debt.

“We very much hope, however, that Greece, with the support of the euro area, will be in a position to re-engage constructively with the private sector with a view to finalising a mutually acceptable agreement on a voluntary debt exchange,” the two men said. Despite the request for more time, the announcement of the breakdown in talks comes perilously close to putting at risk a €14.4bn bond repayment due from Athens in March. Although the redemption is still weeks away, government negotiators had hoped the restructuring would be in place so that Greece would not have to pay the entire amount.

Unless the outlines of the restructuring are completed in a matter or days, international lenders would have to quickly shell out billions of euros in additional aid or Athens would default on its debt payments. In an interview with the Financial Times, Evangelos Venizelos, the Greek finance minister said the talks with Mr Dallara and Mr Lemierre would resume next week.

“We’re meeting in Athens next Wednesday to evaluate the package again,” Mr Venizelos said. “From the Greek point of view we had significant and substantive meetings this week.” In October, Mr Dallara and European officials had agreed to a deal whereby current holders of Greek debt would trade in their bonds for new ones worth half their value. But the details of the deal were left open, including annual interest payments on the new bonds which can change their value drastically.