Ultimatums from Troika and foreign bankers

Negotiations for the PSI and the new funding program for Greece are at a very critical point and without even the slightest hint as to where the balance might shift towards.

The Greek side did not participate in the negotiations held over the weekend in Europe and America, as the teleconference scheduled for yesterday afternoon with the participation of Greek officials was finally canceled.

Speaking to ANT1 TV from Paris, where he attended a meeting of the Paris Club – an informal body which brings together former bankers and senior European officials such as Trichet – IIF spokesperson Charles Dallara said that the proposal he submitted in Athens on Friday "is our best offer. I am not mentioning a specific interest rate but they will have to choose between a voluntary adjustment of debt and default", calling on Germany to back down and accept the rate offered by the bankers.

It should be noted that the rate which the bankers had reached, and which had been accepted by the Greek government, is 4%, starting from 3.5% for the first years with a grace period and escalating depending on the pace of economic growth. The participating bankers agreed to finalize the proposal in the teleconference held on
Friday afternoon with members of the IIF, even requesting closing the deal as soon as possible.

The climate was undermined by the Troika at the meeting held on Friday evening with PM Lucas Papademos, derailing both the PSI agreement and the general discussion on the new funding program for Greece, the main argument being the question of debt sustainability.

According to information first reported by protothema.gr on Friday afternoon, a further reduction of the rate on new bonds was requested, immediately rejected by the bankers, and the full commitment of the government and the parties supporting it for even harder horizontal measures in all sectors. According to the same information, IMF

representative Poul Thomsen appeared intransigent, fueling rumors that in order to disengage from the European problem of state debt, IMF would rather blow the whole effort up.

Part of the German side seems to agree with this position, and as reported last night by the Dow Jones Newswires agency, some Eurozone countries want a new report on the viability of the Greek debt before the summit of January 30. They cite uncontested estimations for the recession in 2012, now expected to reach far beyond -2.8%, and for its continuation in 2013 which, according to Troika reports, is the year the Greek economy could return to positive growth rates.

According to reliable sources, the Troika not only has reviewed the above estimates but during the latest meetings with the Greek government, appeared to question the viability of the Greek debt even if the PSI would close with an interest rate of 3% or lower.

According to Dow Jones, sources familiar with the negotiations say that regardless of the recent development, the EU and the IMF will not allow Greece to default. They add that if there is no agreement, there is even the possibility of an emergency bridge loan to meet the repayment obligations of Greece on the bond of 14.4 billion euros, which
expires in March, allowing time for the completion of the PSI discussions.

With all this on the table, Finance minister Evangelos Venizelos is taking part in the Eurogroup today, which is not expected to make any decisions, but is regarded as particularly crucial as it will reveal the intentions of Europeans and especially Germany’s, for the progress of negotiations and whether it is possible to solve the problem at the summit.