ime is running short for Greece and its creditors to reach agreement on a plan to finalize voluntary writedowns on holdings of Greek debt.
Negotiations between private bondholders and the Greek government in Athens failed to reach a conclusion on Friday and are set to resume on Wednesday, according to several news reports, citing an unnamed Greek government official speaking in Athens.
European leaders in October agreed to a second bailout plan for Greece but required private bondholders to bear part of the burden by agreeing to a restructuring that would write down the value of their Greek debt holdings by half.
German Chancellor Angela Merkel, speaking alongside French President Nicolas Sarkozy, made clear earlier this week that Greece won’t get its next tranche of rescue funding, which is set for release in March, unless there is a deal.
“It is essential in order to finalize the voluntary PSI [private-sector involvement] agreement that support be given by all official parties in the days ahead,” said Charles Dallara and Jean Lemierre, co-chairs of the Steering Committee of the Private Creditor-Investor Committee for Greece, in a statement Thursday.
“As Chancellor Merkel and President Sarkozy stressed in their Berlin press conference earlier this week, it is important that Greece reach agreement with the private sector on a voluntary debt exchange as soon as possible,” they said.
Meanwhile, a government spokesman said Greece is planning legislation that could force reluctant bond holders to participate in an involuntary debt exchange if a majority of private creditors agree to a voluntary plan, The Wall Street Journal reported.
Greece’s so-called troika of international lenders — the European Union, International Monetary Fund and the European Central Bank — previously delayed the release of Greece’s next aid tranche to March. Under the original schedule, Greece would have been able to meet a 14 billion euro ($17.9 billion) bond redemption in March after receiving a total of €15 billion of aid payments in two separate tranches, noted Gustavo Bagattini, European economist at RBC Capital Markets.
“The delay would mean this would no longer be feasible, meaning agreements on the PSI and the second bailout are required to avoid a default on the repayment,” he said.
Meanwhile, high-profile lawmakers from Merkel’s Christian Democratic Union party have stepped up pressure on Athens by describing the possibility of Greece’s exit from the shared currency as manageable.
Measures put in place since 2010 to fight the spread of the crisis make contagion less likely in the event of a Greek euro exit, Michael Meister and Michael Fuchs, who are both deputy parliamentary caucus leaders in the CDU, told Bloomberg. Merkel and Sarkozy, in contrast, have insisted no country will exit the shared currency.
