Resolving the Greek sovereign-debt crisis is crucial to avoiding contagion in Europe, said Deutsche Bank AG Chief Executive Officer Josef Ackermann, as private bondholders met Prime Minister Lucas Papademos to seek an accord to cut the nation’s borrowings.
“I’m confident that we can get our act together in Greece and avoid a major contagion, but that is still a very open question,” Ackermann told Bloomberg News in an interview at the World Economic Forum in Davos, Switzerland yesterday. “That will have a very decisive impact on what is happening in the economy.”
Ackermann chairs the Institute of International Finance, the Washington-based industry group that’s leading the debt-swap talks on behalf of private bondholders. “Some progress” was made at a meeting last night in Athens between Charles Dallara, the IIF’s managing director, and Papademos after European finance ministers demanded this week that bondholders take bigger losses on their Greek holdings. Work is set to continue today, the IIF said in an e-mailed statement.
Ackermann, 63, said the cost of allowing Greece to fail would stretch beyond sovereign debt to investments in the country and the collapse of its economy. “On top of that you have contagion -- Portugal is already under scrutiny, Italy, Ireland, Spain and so on,” he said in a CNBC interview.
Greece and its creditors are haggling over the terms of an accord to reduce the country’s borrowings three months after private bondholders agreed to a 50 percent cut in the face value of more than 200 billion euros ($262 billion) of debt by voluntarily swapping bonds for new securities.
Since then, an economic contraction that exceeded estimates has made the goal of cutting Greece’s debt to 120 percent of gross domestic product by 2020 more difficult. An accord with private investors is tied to a second bailout for the country, which faces a 14.5 billion-euro bond payment on March 20.
Greek Finance Minister Evangelos Venizelos told reporters in Brussels on Jan. 24 that the government intends to wrap up the debt-swap talks with private investors by Feb. 1. European Union leaders hold a summit on Jan. 30.
Greece’s private bondholders had made an offer that 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 on Jan. 23. The new 30-year bonds would carry an average coupon of about 4.25 percent, said the people, who declined to be identified because the talks are private.
European finance ministers meeting in Brussels signaled they would push Greece’s private investors to accept bigger losses, with 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.
“I can understand the strict attitude creditors are taking,” Andreas Plaesier, a Hamburg-based banking analyst at M.M. Warburg, said by phone. “Greece’s behavior could well lead you to believe that this isn’t the last step and that other writedowns could follow. There’s also the concern over whether other countries like Portugal will seek to have their debt load lightened.”
‘Willing to Negotiate’
Greek newspaper Kathimerini, without saying how it got the information, reported yesterday that Dallara will make a proposal that the new bonds carry a weighted average coupon of 3.75 percent.
After a meeting of the creditors’ steering committee on Jan. 25 in Paris, Greek bondholders sent a team of experts to Athens to continue negotiations with the Greek government on the debt swap, with the goal of agreeing on all outstanding legal and technical issues as soon as possible.
“At the end too much is at stake here for Europe in terms of contagion, but also I think for the global economy,” Ackermann told CNBC. “We need someone on the public sector who can really make decisions, and finally, I think we are getting closer to that. We are willing to negotiate.”
‘Tug of War’
“There are always tensions and a tug of war in these areas,” Irish Prime Minister Enda Kenny told Bloomberg Television in Davos on Jan. 25, when asked about the struggles over the swap. “The end result of all this should be strong leadership, decisiveness from a European perspective, a focus on growth and jobs, which can grow the economies of Europe and can have the European market achieve the full potential of the single market.”
Dallara said on Jan. 24 that all parties, public and private, should contribute to cutting Greece’s borrowings. Private investors hold only about 60 percent of Greece’s 350 billion euros of debt, he said. Christine Lagarde, a former French finance minister who is the IMF’s managing director, said that European governments and other public holders of Greek debt may have to increase support if private creditors don’t go far enough.
Michael Meister, the deputy floor leader for German Chancellor Angela Merkel’s Christian Democrats and the party’s ranking finance spokesman, rejected suggestions that the European Central Bank take losses on its Greek debt holdings. He spoke in a Jan. 25 interview.
While the ECB faces pressure to join private-sector investors in accepting losses on Greek debt, the central bank sees any participation as risking damaging confidence in the institution, two people familiar with the Governing Council’s stance said. The debt was acquired for monetary policy purposes and the ECB is firmly opposed to any restructuring, they said on condition of anonymity because the matter is confidential.
“If we extinguish the fire in Greece with a good solution, everybody, and I’m not mentioning any names here, but every institution should contribute to solving that problem, everybody who has a stake in it,” Ackermann said.
ECB President Mario Draghi said on Jan. 19 that the ECB is “not party” to discussions between the Greek government and the private sector. An ECB spokesman declined to comment.
The creditors’ steering committee negotiating the debt swap includes representatives from banks and insurers with the largest holdings of Greek government bonds, including National Bank of Greece SA, BNP Paribas, Commerzbank AG, Deutsche Bank AG, Intesa Sanpaolo SpA, ING Groep NV, Allianz SE and Axa SA.
Financial firms on the IIF’s private-creditor investor committee, a larger group of 32 members that includes the smaller steering committee, hold more than 47 billion euros in Greek sovereign debt, according to data compiled by Bloomberg from company reports.