Private creditors bind the PSI with the negotiations for the new bailout

02 February 2012 / 14:02:25 GRReporter

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To complete the procedure for the voluntary involvement of private creditors in the Greek debt haircut or the so-called PSI, the negotiations with the supervisory Troika on the new 130 billion euro bailout to Greece must first be completed. This is the official release of the Institute of International Finance, which still notes that the negotiations with Greece on the PSI are in a positive phase.
    The final decision has to be known by Sunday, because eurozone finance ministers will meet again on Monday. The issue is urgent, as the maturity of bonds for 14.4 billion euro is on 20 March and Athens would not be able to pay them without a signed contract for the second bailout.
    In a post on Twitter, Mega TV correspondent in Washington Michalis Ignatiou reported that the negotiations on the PSI have stuck due to the insistence of the International Monetary Fund on the European Central Bank involvement in the debt exchange. The European Central Bank holds a large package of Greek securities valued between 40 and 50 billion euro. The financial institution in Frankfurt refuses to become involved in the recycling of Greek bonds, arguing that it is an institutional rather than a private creditor.
    Ultimately, in order to finalize both agreements – the PSI and the new 130 billion euro bailout, Athens has to respond as to whether it accepts the conditions of the supervisory Troika for bold cuts in the public sector, a sharp reduction in private sector wages and aggressive privatization. On Friday, Prime Minister Lucas Papademos will meet the leaders of the three parties that support his cabinet to decide on the response of Greece. Social partners that rejected the proposals of the Troika last week will meet today.
    In his only interview with Greek media, namely Kathimerini newspaper, the head of the mission of the International Monetary Fund Poul Thomsen firmly stated that reducing wages in Greece is compulsory for improving the competitiveness of the country. He compares the minimum wage in Greece, which is 35% higher than the minimum wage in Portugal and higher than the minimum wage in Spain. Poul Thomsen considers the recession inevitable for a country that has to simultaneously reduce its huge budget deficit and make its production competitive. According to the representative of the Fund, it was wrong to focus on increasing taxes in Greece instead of focusing on cutting spending.
    Meanwhile, Fitch analyst David Riley said that Greece's default is inevitable, but it does not necessarily mean leaving the eurozone. The analyst, who heads the states rating department believes that an uncontrolled Greek bankruptcy threatens the eurozone with disintegration. However, according to him, not Greece, but Italy is the biggest problem for the 17.