Greece Set For European Summit Talks On New Bailout
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By Alkman Granitsas, Costas Paris and Laurence Norman
Of DOW JONES NEWSWIRES
ATHENS (Dow Jones)--Greek Premier Lucas Papademos headed for Brussels late Sunday to negotiate a new bailout for his country after weekend talks with private creditors over a planned debt restructuring verged on a deal, and following a renewed commitment by the country's political leaders to pursue fresh reforms.
In remarks following an almost three-hour meeting with the heads of the three parties that make up his coalition government Sunday, Papademos said the country's negotiating position was greatly strengthened by the cross-party support.
A day earlier, Greece and its private sector creditors announced they were on the verge of a deal to write off EUR100 billion worth of the country's debt, pending the outcome of separate talks on the new, multi-billion euro bailout for Athens. In weekend statements, both sides said they expected a deal to be completed next week.
Effectively, the focus now shifts to a European summit in Brussels Monday where the continent's leaders will sanctify--or not--the terms of the debt restructuring and the new loan. But complicating those discussions are new demands by Germany for greater oversight over Greece's budget affairs, and growing concerns that Greece's funding needs might be bigger than originally thought.
Over the weekend, it emerged over that Germany was leading a push for tighter control over Greece's budget and economic plans.
Frustrated with the slow pace of implementation of reforms, a German proposal was circulated last week among euro zone finance ministry officials calling for Athens to cede some control over its budget decisions to Europe in return for a second bailout, one official told Dow Jones Newswires.
The official said any decision to place Greece's budget process under increased European control would "have to be taken consensually with Greece" and cited the German proposal as "one idea among many under discussion."
Greece's finance minister Evangelos Venizelos Sunday pushed back against the proposal, saying Athens had already signed up to an appropriate level of oversight at a summit last October where the outlines of a second bailout package were agreed. He insisted that "Greece alone has, not only the responsibility, but also the incentive to ensure the implementation of the program."
A spokesman for European Commissioner for economic affairs Olli Rehn said Brussels would "reinforce" its monitoring role on the ground, but insisted that "executive tasks must remain the full responsibility of the Greek government."
At last October's summit, European leaders and the International Monetary Fund agreed to provide Greece with EUR130 billion in fresh financing to cover the country's cash needs through 2015. But the new loan was contingent on a debt write-down plan that would slash Greece's debt ratio to 120% of gross domestic product in 2020 from an unsustainable 160% currently.
Since then, further deterioration in the Greek economy and a budget deficit that has widened to nearly 10% of GDP could put those projections in doubt. Euro-zone and IMF officials now say Greece may need roughly an extra EUR15 billion.
But in Athens, the mood Saturday was upbeat. "We really are one step away from a final agreement [on the debt deal]," Venizelos told reporters.
Throughout the day Saturday, Greece conducted parallel negotiations with the private creditors at the same time as it held talks with European Commission, IMF and European Central Bank officials--known as the troika--over the new loan program.
A person with direct knowledge of both sets of talks said a formal deal won't be announced until Athens agrees new austerity measures with the troika.
Without a fresh bailout, Greece won't be able to meet a EUR14.4 billion bond redemption maturing Mar. 20 and could become the first euro-zone member in the 11 year history of the currency bloc to default.
The key to clinching the debt talks appeared to come after bondholders indicated they would accept lower yields on new Greek debt that Greece will issue to replace its old bonds under the terms of the debt restructuring. According to a source close to the negotiations, the creditors agreed to an average yield of less than 4% over the 30-year maturity of the new bonds.
That brings the deal in-line with the recent demands made by Greece's eurozone partners.
"We are close to a finalization of a voluntary PSI (private sector involvement)," the Institute of International Finance, a Washington-based bank lobby representing the creditors, said in a statement Saturday.
Although the final decision on both the debt deal and the new loan will be made in Brussels, Papademos, who heads a three-party coalition government, met with party leaders Sunday to seek anew their commitment to the new loan terms.
In a statement following the meeting, Papademos warned Greeks that the country will need to take further steps to fix its public finances and overhaul its economy, but that Greece's political leaders are united behind the effort.
"The negotiations are not easy. Despite the progress that has contributed to the stabilization of the economy; despite the significant changes and the great sacrifices of the citizens; missed goals and the delayed implementation of policies has led our partners to ask for further commitments and terms," he said.
"The political leaders and I find ourselves in absolute agreement over the need to continue the negotiations and the positions that we will support," he added.
-By Alkman Granitsas, Costas Paris and Laurence Norman, Dow Jones Newswires; , alkman.granitsas@dowjones.com
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