Private creditors: Deal with Greece closeGreece and its private investors are close to a deal that will significantly reduce the country's debt and pave the way for it to receive a much-needed €130 billion bailout.
ATHENS, Greece (AP) — Greece and its private investors are close to a deal that will significantly reduce the country's debt and pave the way for it to receive a much-needed €130 billion bailout.
Negotiators for the investors emerged from two weeks of talks Saturday to announce the tentative agreement, which they said could become final next week.
The investors, who hold €206 billion worth of Greek debt, will receive new bonds whose face value is 50 percent of the existing bonds. The new bonds will have a longer maturity and also pay a lower interest rate than the existing bonds — a further hit to investors. But without the deal, which will reduce Greece's debt load by more than €100 billion, the bonds would likely become worthless.
The agreement taking shape is seen as a prerequisite for Greece to get a second, €130 billion bailout from its European Union partners and the International Monetary Fund, although there are other issues involved before Greece can get that aid. This would be Greece's second bailout. The EU and the IMF signed off on a €110 billion aid package for Greece in May 2010, most of which has already been disbursed.
Greece faces a €14.5 billion bond repayment on March 20, which it cannot afford without additional help.
Private investors hold roughly two-thirds of Greece's debt, which has reached an unsustainable level — nearly 200 percent of the country's economic output. By restructuring the debt held by private investors, Greece and its EU partners are hoping to bring its debt to economic output ratio closer to 120 percent over the next decade.
If no deal is reached and Greece is forced to default, it would very likely spook Europe's — and possibly the world's — financial markets. It could even lead Greece to withdraw from the euro.
The banks, insurance companies and other private holders of Greek bonds are being represented by Charles Dallara, managing director of the Washington-based Institute of International Finance, and Jean Lemierre, senior adviser to the chairman of the French bank BNP Paribas.
The main creditor negotiators will leave Greece on Sunday and will remain in close consultation with Greek and other authorities.