Greece hopes for debt deal 'very soon'

Greece continued negotiations with its private creditors Friday and expressed confidence it can reach a debt relief deal that is crucial to avoid default "very soon," a government spokesman said Friday.

Prime Minister Lucas Papademos met with negotiators from the Institute of International Finance, which represents the private creditors who are being asked to take a loss on their bondholdings to lighten Greece's debt load by €100 billion ($130 billion Cdn).

"The atmosphere of the talks is good, they are continuing today and we hope they will be concluded very soon," government spokesman Pantelis Kapsis told private Radio 9.

"This is very important for the sustainability of the national debt and our ability to handle the debt."

The talks were expected to resume Friday evening following an afternoon teleconference with eurozone officials.

They stalled last week over a disagreement on the interest rate the new bonds would have.

The two sides are now considering a proposal to set an interest rate of below four per cent that would gradually increase until 2020, according to European officials.

Large number of players involved

Louka Katseli, a minister in the previous Socialist government, said the talks were being complicated by the involvement of a large number of parties with a stake in the debt deal.

"This does not only involve Greece and the creditors," Katseli told private Skai television.

Heavily involved behind the scenes are countries like Germany, which is paying the bulk of Greece's rescue loans, and the IMF, which is also involved in the bailouts.

The fear is that if the talks fail, Greece won't be able to service its debts and will be forced to default in March, potentially triggering more turmoil in global markets.

Without an agreement, Athens will be cut off from a second bailout from the International Monetary Fund and the European Union, according to the terms of a deal Greece made with its eurozone partners last October.

At €350 billion ($455 billion), or 160 per cent of its annual economic output, Greece’s debt is so large it can’t afford to repay it, even with the second bailout.

The aim is to reduce that debt by swapping private creditors' bonds for new ones with a lower value. That would amount to a 50 per cent haircut for the bankers, who hold two thirds of the Greek national debt.

The deal is also intended to extend how long it has to repay its bonds.

Default could come March 20

Without a deal, Greece would almost certainly default on March 20, when a €14.5 billion ($18.9 billion) bond repayment comes due — a payment which it cannot make under the present terms.

The creditors must voluntarily agree, to avoid triggering credit default swaps (CDS), which are essentially insurance against a default.

Because it isn’t completely known what institutions are on the hook for those payouts, and how much they owe, banks may decide to curtail lending to each, which would destabilize global markets.

One obstacle to a deal is the fact that some hedge funds and some Greek private creditors have invested in the swaps and stand to make large profits if the country defaults.

The decision to trigger CDSs is made by the International Swaps and Derivatives Association, based in New York.

Also Friday, international debt inspectors arrived in Athens to assess whether Greece is doing enough to get more bailout cash.

Officials from the European Union, the European Central Bank and the International Monetary Fund met with Venizelos.

They will scrutinize Greece's public finances to make sure the country is on track with painful austerity reforms needed to keep tapping rescue loans.