Merkel discusses Greek concerns with Lagarde


CHANCELLOR ANGELA Merkel met IMF head Christine Lagarde in Berlin last night to discuss concerns over Greek reforms and talks over its debt write-down.

Ms Lagarde met the German leader after talks with finance minister Wolfgang Schäuble over Greece and an EU inter-governmental agreement on a fiscal compact. Those talks continue this morning, when Dr Merkel receives Italian prime minister Mario Monti for his first visit to Berlin since taking office while Ms Lagarde travels on to Paris to meet her former boss, President Nicolas Sarkozy.

Germany has taken a tough line on Greece, with Dr Merkel warning that, without “rapid implementation” of reform measures that are behind schedule, “it will not be possible to pay the next tranche” of financial support to Greece.

Despite growing pessimism about Greece’s economic position, market demand for Greek treasury bills remains strong, with rates down slightly yesterday, allowing Athens raise €1.6 billion in six-month treasury bills. Additional pressure is coming from negotiations between IMF officials and Greek’s creditors over accepting further losses on their investments.

While EU officials maintained yesterday that a deal was “about to be finalised shortly”, banks and hedge funds are refusing to go along with the IMF’s terms. Rather than accept losses of up to 90 per cent, leading hedge funds are threatening to let Greece go under and trigger the credit insurance on their loans. Banks, meanwhile, are arguing over the small print of the deal agreed with European leaders on October 26th last.

That agreement called on bondholders to accept a 50 per cent cut in the face value of their Greek debt, with a goal of reducing Greece’s borrowings to 120 per cent of gross domestic product by 2020.

After two months, negotiations between the IMF and banks are stuck over their bonds’ present value, and thus the actual loss the banks will eventually be asked to swallow. Unless a deal is reached by March 20th, when a €14.5 billion bond falls due, Greece is likely to default.

IMF memos, leaked to Der Spiegelmagazine, suggested that the take-up rate for any deal among Greek creditors has slipped from 90 to just 60 per cent.

Even after any deal is struck, the memo suggests Greece will continue to struggle with its liabilities.