Greece debt talk suffers a fresh setback

The ongoing negotiation between the government of Greece and the IIF (Institute of International Finance that includes representatives of private banks and investors) has come to a standstill over debt talk. The bone of contention is a fresh demand that Germany and the IMF (International Monetary Fund) is trying to clamp on private creditors of Greek government bonds. As both sides are refusing to budge from their positions, the issue of Greece’s outstanding debt remains unanswered.

Under the new demand, private bondholders are expected to accept lower interest rates on their Greek bonds. Plus, they are supposed to swap their existing bonds with new 30-year bonds with below 4 percent interest rate. Experts are of the opinion that for private investors this could amount to 60%-70% loss on Greek bonds.

An agreement on debt talk was expected to be reached by this Monday. The intention was to give lenders to Greece enough time to arrange for second rescue package of €130 billion prior to EU’s next Summit scheduled on January 30. With participation of private creditors mandatory for receiving further financial aid, the latest setback has cast a doubt on how Greece would come up with €14.5 billion debt repayment on 20th March.

Finding a solution to the latest crisis is important for leaders of EU. This would not only bring down Greece debt on a sustainable path, but would also have a positive impact on eurozone nations as a whole.

Greece Premier assures December ballot on debt crisis

With the fear of expulsion from the Eurozone looming large on Greece, Premier George Papandreou opts for early December vote. The referendrum is hoped to seal the deal for Greece’s chance to remain an Eurozone member. Though, in doing so, Greece will have to abide by severe austerity measures.

The assurance from George Papandreou came amidst veiled threat from European leaders, especially from France and Germany. The failure to get a clear mandate could mean Greece will cease to be a member of the Eurozone. Plus, it will stop receiving European aid. On the other hand, to remain an Eurozone member and in exchange of using the 12-year old currency, its banks will have to willingly absorb 50 percent loss in Greek bonds.

The threat is the outcome of Papandreou’s letter to Eurozone leaders on Monday. In the letter, Papandreou expressed his plan to hold an election on the second bail-out package details that was negotiated last week.

As of now, the European Union finance ministers are scheduled to meet next Monday to hasten the speed on decisions concerning the Eurozone relief package. But before this, Papandreou government is going to face confidence vote on Friday that will decide his own political career.