Greek debt talks could fail on new demands

NEGOTIATIONS between financial authorities and bondholders may be derailed this week by the increasing demands of the European Commission, ECB and IMF.

However, Charles Dallara, head of the Institute for International Finance (IIF), which represents investors holding around €200bn (£165.7bn) of Greek government debt, yesterday announced he “remains hopeful” that a deal will be reached soon – though it is unlikely that he will hit today’s deadline, set by finance minister Evangelos Venizelos.

Meanwhile Italian Prime Minister Mario Monti stepped up his campaign to boost the euro’s rescue fund.

It is thought that private investors in Greece were close to finalising a deal on Friday, under which they would take a 50 per cent haircut on their bonds, which would be swapped for new notes yielding four per cent.

Officials are believed to have demanded investors accept yields of 3.5 per cent or even less on that new debt – a further concession to the bankrupt Greek government, which could potentially de-rail the deal.

If the deal is not completed by March, Greece is expected to default on the €14.5bn of repayments due.

Looking to the stability of the Eurozone as a whole, Monti wants the European Stability Mechanism to be doubled to €1 trillion.

Italy is currently undergoing a sizeable fiscal and economic adjustment, and Monti hopes the safety net of a larger bailout fund will calm the investors who fear Italy cannot pay its debts, and so make the reforms easier.