Greek talks go down to the wire

Private bondholders refuse to accept further losses on the face value of their assets.

Private bondholders refuse to accept further losses on the face value of their assets.

NEGOTIATIONS over the fate of the Greek economy are going down to the wire after private bondholders refused to accept further losses on the face value of their assets.

Before last night's crucial meeting of European finance ministers, the managing director of the Institute of International Finance, Charles Dallara, said he was hopeful the European Union and International Monetary Fund would avert a Greek default by agreeing to terms for private sector involvement in a debt-swap deal.

The IIF, which represents private holders of Greek debt, had previously agreed to a 50 per cent ''haircut'' on the value of about ?200 billion ($A246 billion) of bond holdings. Mr Dallara said IIF members had made their ''maximum'' offer, without saying what that offer was.

''The elements now are in place for a historical voluntary private sector involvement deal,'' Mr Dallara told Athens-based Antenna TV.

''It is a question now, really, of the broader reaction of the European official sector and, of course, of the IMF to this proposal.''

A Greek debt-swap deal would see private bondholders exchange outstanding bonds for new ones to help reduce the country's borrowings to 120 per cent of gross domestic product by 2020.

But European officials and bondholders have not been able to agree on the interest rates and maturity of the new bonds, which would determine losses for investors.

At issue is the fact that the Greek economy was expected to shrink by about 6 per cent last year, according to the latest IMF estimates, compared with a June forecast of 3.8 per cent.

Because of that, IMF and European Union officials are said to be pushing for bondholders to accept lower interest rates on new bonds.

And an agreement is key to a ?130 billion financing package for Greece, which faces a ?14.5 billion bond payment on March 20.

Investors remained nervous yesterday, with the S&P/ASX 200 Index slipping 14.5 points to 4225.1.

''It has made for a pretty tense Asian trading session,'' said IG Markets market strategist Stan Shamu. ''However, despite some disappointment that no deal has materialised, there has been no real panic selling either.''

Senior National Australia Bank strategist Emma Lawson said currency markets oscillated early in the day, but with financial markets in China, Hong Kong, Singapore, South Korea, Taiwan, Indonesia and Malaysia shut for the Lunar New Year holiday, they remained largely unaffected by the news.

''Currency markets aren't reacting very much,'' Ms Lawson said. ''I think we need to see how hard the IIF are going to dig their heels in. They've told us the next move is down to the IMF, and the IMF says bondholders need to take greater cuts.''

With the World Economic Forum starting in Davos, Switzerland, this week, and with European finance ministers debating a new fiscal compact for Greece, investors will stay tuned to Europe.

The dollar finished the Australian session at $US1.0486 compared with $US1.0409 at the close on Friday.


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