Delay for €130bn Greek bailout

GREECE’S NEW €130 billion rescue package could be delayed, after talks on a voluntary “haircut” for private-sector bondholders ended without agreement yesterday, according to people involved in the discussions.

Both the debt negotiations and the implementation of structural measures agreed with the European Union and International Monetary Fund are running more than a month behind schedule, despite efforts by Lucas Papademos, the new Greek premier, to accelerate the reform timetable.

Details of a deal agreed in October, in which bondholders accepted to a 50 per cent haircut on the face value of their bonds, have to be wrapped up before the €80 billion first tranche of new funding can be disbursed, a Greek official said. “We expected to complete on the bonds in December, now it’s looking like February,” said one official.

In spite of indications that government negotiators were poised to postpone talks until after the holidays, Charles Dallara, head of the consortium of financial institutions negotiating with the Greek government, said bondholders hoped to resume discussion soon. Negotiators said talks could restart as early as tomorrow in Paris.

“We did make some progress, but the key issues remain open and unresolved,” Mr Dallara said.

He said there were three outstanding issues, including whether government lenders to Greece would be treated in the same way as private debt holders. Private investors say putting government bailout lenders on the same level will protect them.

Private bondholders are also insisting new bonds issued to them as part of the haircut be governed by UK rather than Greek law, preventing the Greek government from unilaterally cutting their payments. The two sides are still negotiating over bond interest rates.

The timing of a deal has become part of the negotiating strategy of both sides, with some euro zone negotiators saying by delaying talks until closer to a large March bond-repayment date, their threat of an involuntary default will appear more real, strengthening their hand. Greece failed to deliver several reforms due to be completed last month. – Copyright The Financial Times Limited 2011