BRUSSELS (MNI) – The parties to private sector Greek debt reduction
talks have given themselves until mid-February to complete the deal amid
an ongoing dipute over the level of interest rates that Greece must pay
on new bonds it will issue to replace old retired ones.

The target now is to finish the final proposal “as soon as
possible” and no later than February 13, a Greek Finance Ministry source
said. The idea, the source said, is to leave enough time for the deal to
be accepted by creditors so that it can cover some E14.4 billion worth
of bonds maturing in March.

Just last Friday, negotiators had hoped to reach a deal over the
weekend — in time for it to be discussed and approved at tonight’s
meeting of Eurozone finance ministers. But the inability to agree on
interest rates has made that timing impossible.

The most recent proposal on the table called for an average
interest rate of about 4%. But the International Monetary Fund and some
EU countries, led by Germany, are insisting that the rate be closer to
3.5%. Otherwise, they fear, more public money will have to be thrown
into the pot for Greece to meet its obligations.

The finance ministry official said that Greek Finance Minister
Evangelos Venizelos had briefed his Eurozone counterparts this evening
on the status of the negotiations with the International Institute of
Finance, which is representing the private creditors. The Eurozone
finance ministers, known as the Eurogroup, decided that the talks should
continue.

The debt reduction negotiations are to be supported by the
so-called troika, which is composed of the IMF, European Commission and
ECB, and by the EU’s European Working Group, which prepares the
Eurogroup’s agenda.

The ministry source said the Eurogroup had reviewed an updated
analysis of Greece’s debt sustainability, prepared by the troika. The
working principle is that the private sector’s contribution to debt
reduction, combined with a new E130 billion bailout from other Eurozone
governments, must suffice to reduce Greece’s debt ratio to 120% of GDP
by 2020.

The official said that Eurozone finance ministers expect the
agreement with private sector creditors adhere to the guidelines
established by EU leaders at their October 26-27 summit. Since the
fiscal outlook of Greece has worsened since then, Germany and some other
EU coungtries, along with the IMF, will continue to push for a lower
average interest rate on the new Greek bonds, in order to ensure that
the 120% target is achieved by 2020.

During this evening’s Eurogroup meeting, which is still ongoing,
the other EMU finance ministers told Venizelos that the private sector
debt deal and the new E130 billion bailout are interlinked. They also
said that Greece will only get the new rescue package if it implements
all its commitments, the ministry official said.

The finance ministers said that these commitments — which include
a new round of income cuts in the private and public sectors as well as
public sector lay-offs — must not only be implemented but also
respected and accepted by all three political parties that support the
current coalition government. That is a pre-requisite, the source said.

–Brussels newsroom; a_papamiltiadou@hotmail.com

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