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Greece may face full default after talks with bondholders falter

Talks between Greece and its bondholders have “paused for reflection” but may be on the verge of total collapse.

Charles Dallara from the Institute of International Finance leaves after talks with the Greek government yesterday. The talks
Charles Dallara from the Institute of International Finance leaves after talks with the Greek government yesterday. The talks "paused" today and may not resume.
Image: Petros Giannakouris/AP

TALKS BETWEEN the Greek government and the holders of its bonds have stalled and are reportedly on the verge of total collapse, it is reported this evening.

Representatives of the private bondholders – who are expected to take a 50 per cent hit on the value of their investments, if Greece is to avoid a total default – said the talks had “paused for reflection”.

The Financial Times reported a more drastic event, however, saying the talks had collapsed altogether – making it more likely that Greece’s second bailout may need to be revised.

Its report said the talks had broken down entirely after Greek negotiators demanded a haircut even greater than the 50 per cent target – an outcome which private investors were not prepared to tolerate.

The talks had been conducted between Lucas Papademos, the Greek prime minister, and the finance minister Evangelos Venizelos. They were in talks with the Institute of International Finance, which represented private bondholders.

An IIF statement issued afterward said that “unfortunately, despite the efforts of Greece’s leadership, the proposal put forward… has not produced a constructive consolidated response by all parties, consistent with a voluntary exchange of Greek sovereign debt.”

Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.

We very much hope, however, that Greece, with the support of the Euro Area, will be in a position to re-engage constructively with the private sector with a view to finalising a mutually acceptable agreement on a voluntary debt exchange…

AP cited senior Greek government officials who said the talks would resume on Wednesday.

Without a deal – which aimed to reduce Greece’s national debt by a whopping €100 billion – Greece will probably require a larger bailout, including greater cash payments, if it is to avoid a full-blown ‘disorderly’ default.

This is itself made more complicated by the prospect of France being downgraded – because this will also mean a downgrade for Europe’s bailout fund, and reduce its effective lending capacity.

France set to lose AAA rating in S&P downgrade

Ireland plans to return to bond markets this year

About the author:

Gavan Reilly

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