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live Dramatic turn in the negotiations for the Greek PSI

21 January 2012 / 17:01:07  GRReporter
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While everyone expected that by Saturday the news would break that the Greek government and its private creditors have reached an agreement on the 50 percent cut on foreign debt, a different news broke out. The representatives of the private creditors Charles Dallara, managing director of the Institute of International Finance and Jean Lemierre, senior adviser of the French BNP Paribas surprisingly departed for Paris. At night, when leaving the residence of the Greek Prime Minister, Finance Minister Evangelos Venizelos told the waiting reporters that there would be another meeting on Saturday with Mr. Dallara and Lemierre. However it did not take place.
    This is the second interruption of the negotiations between the Greek government and its private creditors. Last Friday after a shower of optimism that the agreement was about to be finalized Charles Dallara surprisingly travelled to Washington and returned on Wednesday when talks were resumed. The situation was repeated this Friday again, when both sides were confident that they had reached an agreement, but it turned out that this was not quite true.

    This time the reason for this turned out to be the International Monetary Fund and in particular, the head of its mission in Greece, Poul Thomsen. He expressed serious objections, that with the interest rates agreed upon, the Mediterranean country would not be able to service its debt in 2020. According to him in this way in 2020 the Greek debt will be 150 percent of the GDP, i.e. 60 billion euro more than the target. At his insistence, Greece has requested a reduction of the interest rates to 2 percent - something that the creditors strongly disagreed with.
    Poul Thomsen’s stubbornness was considered surprising by the Greek government, which during the week sent to Washington the Director of the Debt Management Agency Petros Christodoulou and the Secretary General of the Ministry of Finance Georgios Zanias. They met with the representatives of the International Monetary Fund, but did not understand their objections for the interest rates on the new, recycled Greek securities.
Thus on Monday, Finance Minister Evangelos Venizelos will travel to the Eurogroup meeting without an agreement in hand. This is undoubtedly an unfavourable development for the Greek government, which should complete the PSI, in order to start negotiations on the second package of financial aid for the amount of 130 billion euro. Without it, the country will not be able to pay in March the maturing bonds worth 14.4 billion euros.

Tags: PSI talks private lenders Charles Dallara Institute of International Finance debt remission bankruptcy
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