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IIF’s Dallara ‘Hopeful’ of Finding Common Ground on Greece

By Elisa Martinuzzi & Liam Vaughan - 2012-01-24T15:34:22Z

Charles Dallara, managing director of the Institute of International Finance, said he’s hopeful of finding “common ground” on a Greek debt swap as European finance ministers pushed for greater concessions from the country’s private creditors.

“We put an offer on the table and it remains on the table,” Dallara, who’s negotiating with Greece on behalf of private bondholders, said in a Bloomberg Television interview today. “All parties need to contribute to the solution. We are wiping off the face of the earth 100 billion euros ($130 billion) of claims against Greece.”

European finance ministers meeting in Brussels signaled they would push Greece’s private investors to accept bigger losses after Dallara made what he described as the bondholders’ “maximum” offer. Euro area governments are seeking to fill a deeper-than-expected hole in Greece’s finances by saddling investors with a lower interest rate on exchanged bonds, setting up a confrontation before a European Union summit on Jan. 30.

Brinkmanship over Greece clouded progress toward new fiscal rules and a beefed-up rescue fund, posing a potential setback to the start-of-year rally in stocks, bonds and the euro. A Bloomberg index of European financial shares posted its biggest decline in two weeks.

More to Do

“Obviously Greece and the banks have to do more in order to reach a sustainable debt level,” Dutch Finance Minister Jan Kees de Jager told reporters in Brussels before the final session of a two-day meeting of European ministers.

European officials and the nation’s private bondholders agreed in October to implement a 50 percent cut in the face value of more than 200 billion euros of Greek debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020. The accord is key to a second financing package for the cash-strapped country, which faces a 14.5 billion-euro bond payment on March 20.

The latest proposal from the IIF would lead to a loss of about 69 percent on the net-present value of Greek bonds, two people with knowledge of the talks said. Under the proposal, the new 30-year bonds would carry a coupon of about 4.25 percent, said the people, who declined to be identified because the talks are private.

Finance chiefs are pushing for coupons below 3.5 percent for debt to be serviced until 2020 and below 4 percent over the 30 years of the next Greek package.

Paris Meeting

Dallara said he would consult with Greece’s creditors in a meeting in Paris tomorrow “to see what their thinking is.” He and Jean Lemierre, a special adviser to the chairman of BNP Paribas (BNP) SA, are leading talks for the bondholders.

There’s a lot riding on resolving the crisis cooperatively, Dallara said at a press conference in Zurich, adding that he hasn’t yet received a “formal” response from official parties to the bondholders’ latest offer.

Private investors hold only about 60 percent of Greek debt, and all parties, public and private, need to contribute to reducing Greece’s debt, Dallara said. The European Central Bank has said it won’t participate in the debt swap.

“It is important for all parties to recognize how much we all have at stake here and work together and co-operatively to find a solution,” Dallara told reporters. “Some might minimize the risk of an involuntary debt exchange and point to other cases such as Argentina. I would caution against that attitude.”

‘Psychological Impact’

The difference between the losses bondholders have offered and those mentioned by EU finance chiefs “comes down to 10 billion or 20 billion euros” over the life of the new bonds, said Carsten Brzeski, an economist at ING Group in Brussels.

“This is just nothing compared to the psychological impact you would get on Spanish or Italian yields if Greece were to go bust,” Brzeski said in an interview today. “They’re going to find a deal,” he said on Bloomberg Television.

The contribution of euro governments and the International Monetary Fund to the package will stay at 130 billion euros as pledged in October.

“It’s obvious that the Greek program is off track,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing last night’s meeting of ministers from the 17 euro countries.

The stalemate is reminiscent of October’s bargaining over bond losses and threatens to spill into next week’s leaders’ summit.

To contact the reporters on this story: Elisa Martinuzzi in Zurich at emartinuzzi@bloomberg.net Liam Vaughan in London at lvaughan6@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

Enlarge image

EU Seeks More Bondholder Concessions

Sean Gallup/Getty Images

A sculpture stands in front of a flag of the European Union at one of the buildings of the European Commission in Brussels, Belgium.

A sculpture stands in front of a flag of the European Union at one of the buildings of the European Commission in Brussels, Belgium. Photographer: Sean Gallup/Getty Images

Dallara on IIF Greek Debt Swap Offer, Jan. 24