Greek talks on haircuts to resume

Julian Harris
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TALKS between Greek authorities and private holders of the government’s debt will continue today after breaking down in acrimony last week, although fears the near-bankrupt nation will default are growing.

The Institute of International Finance (IIF) – which represents private bondholders – yesterday confirmed it will return to the table.

A haircut to avoid default is still believed to be widely preferred within the IIF, yet Newedge’s Bill Blain warned yesterday: “Default becomes a more attractive option to voluntary haircuts at some point. Hedge funds will look forward to CDS execution”.

Hedge funds that have snapped up debt expiring in March could hold a strong hand in negotiations. Yet it is not clear how much influence the hedgies will be able to exert.

For now, the sticking point remains the rate of interest on replacement, lower-value bonds.

Private holders want higher rates of interest to mitigate losses endured by a voluntary haircut on existing bonds, yet government officials are concerned that greater costs could cripple Greece’s ability to move towards sustainable levels of debt.

Ratings agency Fitch said that a voluntary haircut would constitute a default. “It is going to happen. Greece is insolvent so it will default,” Edward Parker, a Fitch managing director, said yesterday. “It clearly is a default, however they try to spin it.”