Greece a 'step away' from debt deal

Greece said Friday that it was "a step away" from a major debt writedown as it resumed talks with private creditors to escape a looming default and stem further turmoil in the eurozone. Charles Dallara, the lead negotiator for banks, insurers and other private investors arrived at the residence of Prime Minister Lucas Papademos for talks with the premier and Finance Minister Evangelos Venizelos. "We are a step away from concluding procedures on the PSI," said Venizelos, just before the start of talks, adding that the negotiations "were difficult and delicate." The third round of talks between Athens and private creditors, which began Thursday, aims to reach agreement on a voluntary exchange of bonds that would wipe 100 billion euros ($130 billion) off the country's debt of 350 billion euros. The Private Sector Involvement (PSI) deal under discussion would see the creditors agree to a discount or "haircut" of at least 50 percent on the 200 billion euros in debt they hold. "We hope that the major framework of the agreement will be finalised with the goal of concluding the accord," government spokesman Pantelis Kapsis told Radio FM. Athens faces a critical bond reimbursement worth 14.5 billion euros on March 20. It had hoped to present European Union leaders a framework agreement on the debt writedown at their summit on Monday, and sign an agreement by February 13 so there is sufficient time for the writedown to be achieved. Eurozone heavyweights Germany and France were cool meanwhile to mounting calls, backed by the head of the EU executive, to increase the size of a planned second Greek bailout. Sources have indicated a potential shortfall of up to 15 billion euros ($20 billion) if Athens is to meet an EU-IMF target for debt sustainability, with banks playing hardball over a big debt write-down from their side. "If our Greek friends do their bit, we must support them," European Commission chief Jose Manuel Barroso said, implying that governments would have to step in where banks won't. Barroso argued that a messy default would signal a "major problem" not only for Greece but for the eurozone as a whole. A new analysis will be conducted by the IMF and the eurozone to ensure that the writedown returns Greece's debt to a sustainable level, according to a Greek finance ministry official. The IMF, which is bound by rules to lend only to countries that have sustainable debt levels, has insisted that the level of Greek debt be reduced to no more than 120 percent of national output. It currently stands at around 160 percent of gross domestic product, and sources close to the talks said proposals now on the table would only get Greece down to around 130 percent. Jean-Claude Juncker, head of the Eurogroup of eurozone finance ministers, said Friday that Greece's creditor countries should also waive a portion of the country's debt, as cutting private debt alone was not enough. Countries should ask themselves "whether public aid may be needed", the Luxembourg premier told Austria's Standard newspaper. The European Central Bank (ECB), which holds around 45 billion euros worth of Greek bonds, has so far ignored calls for it to accept losses. IMF chief Christine Lagarde warned Wednesday that European public creditors would need to pitch in and help Greece. If a deal with private creditors is reached, Athens can pursue talks with EU partners on a second public aid package worth about 130 billion euros. But the patience of other countries is running thin, with German Finance Minister Wolfgang Schaeuble calling on Greece to move quickly on economic reforms in order to get fresh support. "We've had enough announcements, the government in Athens must act now," he was quoted as saying in an interview published Friday by the Stuttgarter Zeitung newspaper. Greece has implemented austerity measures but has been slow to implement structural reforms and push ahead with privatisations that are considered necessary for the country to get growth back on track and pay its debts.