ZURICH (MNI) – The public sector has neither rejected nor accepted
the latest proposal for private sector involvement (PSI) in Greek debt
reduction, Charles Dallara, head of the Institute of International
Finance, said Tuesday.

He noted that private creditors had not received any official
response yet to the proposal, which Dallara said last weekend was as low
as the private creditors could go on interest rates before the
restructuring deal ceased to be voluntary. The IIF is representing
private banks in the Greek PSI talks.

Eurogroup President Jean-Claude Juncker said Monday that the banks
should accept an average coupon of “clearly below 4%” for the new bonds
issued by Greece after the restructuring — a view shared by Germany
along with some other EU countries and the International Monetary Fund.

The IIF is said to want a rate of at least 4% and perhaps a bit
higher. The talks have foundered in recent days over that disagreement.
Dallara confirmed that the coupon on restructured bonds remains a
contentious point.

Dallara, stressed that the IIF remains committed to a voluntary
private sector deal, but said pointedly that all parties must live up to
their promises of the October 26 accord.

The IIF believes it is honoring the promise made at the October EU
summit to reduce Greece’s privately-held debt by 50% of its nominal
value. The deal on the table is expected already to reduce the net
present value of that debt by more than 65%.

“Our position is quite clear…[and] is fully consistent with the
October 26-27 agreements,” Dallara said. “What we asked is that
authorities stick to their own commitment.”

“Private creditors are doing more than their fair share. They are
wiping off E100 billion to help Greece to a fresh start,” Dallara
argued. The large amount of Greek debt held in public hands raises a
question about “fair burden” sharing, he added.

The comment may be a hint that Dallara expects the public sector to
participate in Greek debt restructuring, but he said he would not
speculate whether this might eventually happen.

There has been increasing speculation that in case a PSI deal does
not offer Greece sufficient debt relief, the Eurosystem could bridge the
gap by allowing its national central banks to take haircuts on the Greek
bonds they are holding. As Market News International reported earlier
this month, the IMF believes that an additional E15 to E20 billion might
still be needed after the PSI deal to ensure Greece hits its debt
“sustainability” target of 120% of GDP by 2020.

Top European political leaders agreed that if the governments of
the Eurozone are unwilling to shoulder that extra burden – and it’s a
good bet they will not be – then the central banks should be prevailed
upon to make up the difference.

Dallara said he remains hopeful that “we will find common ground in
the days ahead.” To this end, Dallara he cancelled his scheduled trip to
the World Economic Forum in Davos, Switzerland to head to Paris for
further talks. The IIF would not release details of his scheduled
meetings.

Dallara said that a deadline for the a deal was “looming” but would
not commit to a precise date. He also said that Greek authorities had
not officially communicated February 13 to him as their deadline, though
a Greek finance ministry official told reporters Monday night that was
the deadline.

“If we can reach a voluntary agreement, I feel quite confident
about large scale participation,’ Dallara said.

He also said that while the Greek government may not have reached
all targets, it has “moved forward on the broad plain.” Particularly,
the government under Lucas Papademos is “clearly very committed” to
secure a deal, Dallara said.

However, the complicated nature of the multi-pronged negotiations,
also including the IMF, the ECB and other Eurozone governments, has not
made an agreement easier, Dallara said.

–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com

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