Time Running Out Fast for Greece While Investors Balk at Losses

ATHENS – While the government keeps insisting it soon expects a deal with private investors to write down the country’s debt, as part of a second bailout package needed to keep the country from defaulting, there was reportedly little progress in a meeting on Jan. 19, just a day before Finance Minister Evangelos Venizelos said an agreement must be reached. He has repeatedly given rosy predictions of a settlement with investors, but they are balking at being asked to accept a lower interest rate in a re-financing of the country’s loans that could give them losses of 70 percent or more, instead of the 50 percent forecast.  When Greece reached a tentative deal with European Union (EU) leaders last October for a second rescue package, this one for $165 billion, the so-called “haircut” investors would have to take was 21 percent.
Greece is surviving on a first round of $152 billion in emergency loans, but without reaching a deal on the second bailout  – that also includes yet more pay cuts, tax hikes, slashed pensions and scores of thousands of layoffs – the Troika of the EU-International Monetary Fund-European Central Bank said it won’t release the next round of money needed to pay an $18.5 billion loan repayment to investors and keep paying workers and pensioners.
Reuters reported that the negotiations had snagged again, a week after they broke off because Venizelos won’t back down and demands that Greece not repay most of its loans. Interim Prime Minister Lucas Papademos, whose coalition government is trying to keep the money tap open, said he may force investors to take bigger losses, but they have threatened to go to the European Court of Justice to get their money. If Greece doesn’t get a voluntary agreement, it could trigger an involuntary default that could push the country out of the Eurozone of the 17 countries using the euro – jeopardizing the union itself – and force a return to the ancient drachma with catastrophic economic consequences.
A senior Greek official also played down speculation that terms of a deal had been nearly pinned down, saying: “Nothing has been concluded yet,” hours after the government predicted a deal was coming. Papademos and Venizelos are talking with Charles Dallara, head of the International Institute of Finance representing private bond holders, but one hedge fund with holdings in Greece has already walked out and there were reports that other hedge funds were trying to derail the negotiations so that Greece would have a disorderly default, and they could cash in big by gambling that Greece would fail.
Even if a deal is struck quickly, the paperwork will take weeks and Greece says the work must be cleared before funds are doled out from the second rescue plan of $165 billion. Even that may not be enough to save Greece, as IMF chief Christine Lagarde said the country needs at least “tens of billions” of euros more because the first bailout has failed and there has been little effort to go after tax evaders who owe more than $60 billion, not to mention the proposed privatization plan has gone nowhere. Venizelos said that there must be an agreement in principle by Jan. 20, formalized before a Jan. 23 meeting of Eurozone finance ministers.  “Now is the crucial moment in the final battle for the debt swap and the crucial moment in the final and definitive battle for the new bailout,” Venizelos told Parliament. “Now, now! Now is the time to negotiate for the sake of the country,” he said.
The swap is aimed at cutting $130 billion off Greece’s $460 billion debt, and would effectively give Greece free money, which critics say would only encourage more of the profligate overspending the created the economic crisis and keep the country reliant on welfare-style grants from lenders. The loans have come with requirements for austerity measures that have created 18.2 percent unemployment – nearly 50 percent for those under 25 – and led to more than 100,000 businesses closing as Greeks buried under an avalanche of tax hikes and pay cuts have slowed or stopped spending.
Venizelos said the deal is critical to reducing the country’s 10 percent deficit, which is three times the ceiling allowed by the Eurozone, and lower the debt from 160 percent of Gross Domestic Product (GDP) to 120 percent by 2020, although Greece is already technically bankrupt and the crisis has consigned the next generation of Greeks to a drastically-reduced lifestyle, poverty for many, created the biggest increase in suicide and homelessness rates in Europe, and led 500,000 people to flee the country for better prospects. The crisis was precipitated by generations of the PASOK Socialist and conservative New Democracy parties packing public payrolls with unnecessary political hires in return for votes so they could stay in power, but it has led disgruntled Greeks to walk away from the major parties and turn more and more to minority parties, including the Communists, who are rapidly gaining ground.
Despite all the pessimism, Horst Reichenbach, head of the European Commission’s task force to help rebuild the Greek economy, appealed to Europe for patience with the Mediterranean country, saying reforms were moving slowly but no miracles should be expected. In Washington, an IMF spokeswoman said staff at the Fund had sought executive board approval for talks with Greece that might lead to a deal requiring more “exceptional access” to IMF loans, although Greece already has it and has borrowed more than six times its limit.