Greece, creditors gear up for next round of debt talks

Greece and its private creditors will try again this week to settle differences in a high stakes standoff on cutting the nation's massive debt and preventing a default that would rock the eurozone. Athens and bank representatives are to explore on Wednesday and Thursday ways of cutting 100 billion euros ($128 billion) in debt from a total of more than 350 billion euros that is crushing the country. The talks broke off late last week, reportedly after an intervention by the International Monetary Fund and Germany, a key eurozone creditor, which reportedly sought to lighten the burden on Greece. "We have reason to believe that we will reach an agreement soon," a Greek finance ministry source said Tuesday. The Institute of International Finance that is leading the negotiations on behalf of private banks and other financial institutions that own Greek debt said Tuesday they remain committed to reaching a deal. Private investors "reiterated their commitment to seeking an agreement on a voluntary debt exchange for Greece and encouraged all parties to work in good faith toward this end with a sense of urgency," an IIF statement said. Athens is threatened by an historic debt default in March but the government of Prime Minister Lucas Papademos has vowed to hammer out a deal before then, and downplayed the consequences of the stalled talks on Friday. The finance ministry source did not rule out that a resumption in the negotiations would have to wait until Thursday however, given "the arrival expected in Athens late Wednesday by Charles Dallara, head of the IIF." In October private investors agreed to pursue talks on a deal that would see them foregoing 50 percent of the money owed to them, along with an exchange of the remaining debt for bonds with a maturity of 20-30 years. On Friday, discussions got hung up over the amount of the new bond's coupon, or rate of interest, that Athens would pay private creditors. A source close to the talks told AFP a rate of five percent had almost been agreed to before the two sides were taken by surprise by observers attending the sessions. On one hand, representatives for hedge funds protested that the rate was too low, which prompted the IMF and Germany to suggest an even weaker level of three percent. With even large institutional banks up in arms over that proposal, a rupture quickly ensued, the source said. "The banks did not have enough control over the hedge funds, but things should calm down," the source said. "We will find a rate that works for everyone, probably somewhere between four and five percent, perhaps a little less, and variable over time," it added. Greek media said that Germany and the IMF sought above all to ease the burden on Greece. The finance ministry source added that "everyone has an interest in this working, Europe, (German Chancellor Angela) Merkel, (French President Nicolas) Sarkozy, (Italian Prime Minister Mario) Monti and the banks." Following the sovereign debt ratings downgrade of nine eurozone countries by Standard and Poor's on Friday, "they have an overriding interest in signing something that shows the eurozone is restoring financial discipline," the second source added. That would reassure markets the eurozone is able to resolve its own problems. Meanwhile, Athens is also holding talks with public creditors led by the IMF and European Union officials to release loans worth 130 billion euros in a second round of financial aid on top of 110 billion euros already pledged in May 2010. In Athens on Tuesday, normal activity was at slow-motion amid strikes and demonstrations against proposed reforms, while the heads of a mission that includes the IMF, European Commission and European Central Bank were expected on Friday.