FRANKFURT (MarketWatch) — Expectations that Greece and private creditors will reach agreement on a plan to cut the nation’s debt load were on the rise Friday as talks were set to continue in Athens.
Hopes were buoyed after Olli Rehn, the European Union’s economic and monetary affairs commissioner, said a deal could be reached soon, possibly by the weekend. He made the remarks at the World Economic Forum in Davos, Switzerland.
Greece has once again dominated headlines surrounding the euro-zone debt crisis as negotiations have dragged on amid fears that even a planned 50% writedown of the debt held by banks and private creditors won’t be enough to put the country’s massive debt pile on a sustainable footing.
Charles Dallara, managing director of the Institute of International Finance, and Jean Lemierre, senior adviser to the chairman of French bank BNP Paribas, were set to meet again with Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos on Friday evening, the Associated Press reported.
Negotiators met Thursday night, where they focused on legal and technical issues “and some progress was realized,” said the Institute of International Finance, a lobbying group representing international banks, in a statement.
Private bond holders agreed last year to accept a 50% writedown in the value of their Greek debt holdings through a bond swap. That is expected to knock as much as 100 billion euros ($131.3 billion) off Greece’s debt load.
But talks have stalled amid disagreement over the average interest rate bondholders should be paid on the bonds they will receive in return for existing debt. Euro-zone finance ministers earlier this week rejected a proposal by bondholders for a 4% coupon rate on the new bonds, pushing instead for a rate nearer 3.5%.
Officials have argued that a lower rate is necessary to ensure Greece meets its target of cutting its debt as a percentage of gross domestic product to 120%, down from 160%, by 2020.
The Financial Times on Friday, citing people familiar with the proposal, reported that Dallara and Lemierre could offer interest rates for new bonds that would translate into bigger losses for bondholders but that could be recouped if Greece returns to strong growth.
Private creditors hold around €206 billion of Greek debt, according to Michala Marcussen, head of global economics at Societe Generale. Assuming a participation rate in the debt swap of 90%, a 50% writedown would cut Greece’s debt by around €90 billion, or 40% of GDP.
All else being equal, each half-percentage-point reduction in the coupon that private investors accept would cut Greek debt by a further 2.5% of GDP, Marcussen said.
In Athens, the General Index GR:GD -2.68% fell 2.7% on Friday, but the benchmark tracking Greek equities ended the week higher.
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(These stats are now out of date and will be updated as soon as we can get to them, you just cant get the staff these days!!)
Our model portfolio is up 399.82% since inception
An annualized return of 93.60%
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94 completed trades, 86 closed at a profit
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