Greece default fears grow

Athens - Greece sent senior officials to Washington on Monday for meetings with the International Monetary Fund (IMF) as it raced against the clock to break a deadlock in debt swap talks that has prompted new fears of an unruly default.

Barely a month after an injection of bailout funds helped avert bankruptcy, Greece is back at the centre of the eurozone crisis as fears of a default and a subsequent eurozone exit overshadow a mass credit downgrade of eurozone countries.

Athens needs a deal with the private sector within days to avoid going bankrupt when €14.5bn of bond redemptions fall due in late March. But talks with its creditor banks broke down without an agreement on Friday.

Greece put a brave face on the standoff.

"There is a little pause in these discussions. But I am confident that they will continue and we will reach an agreement that is mutually acceptable in time," Greek Prime Minister Lucas Papademos told CNBC television.

He said talks on both the debt swap and the latest bailout must be completed over the next two to three weeks.

"This is the objective. I think the conditions are in place in order to do so," Papademos told the broadcaster.

A deal with the banks must be sealed before senior inspectors from the European Union, IMF and European Central Bank (ECB) "troika" arrive in Athens next week to finalise a second, €130bn bailout.

The banks say Athens is not the problem in the talks, suggesting the issue lies with terms insisted on by foreign lenders keeping Greece afloat with aid.

In a bid to resolve the impasse, a government source said the head of Greece's debt agency and a senior adviser were travelling on Monday to Washington to meet IMF officials - just a day before a team of technical experts from the troika arrives in the Greek capital.

Under the bailout terms agreed in October, Greek privately-held debt would be reduced by half so that, together with structural reforms, the overall debt to gross domestic product ratio of Greece would fall to 120% in 2020 from 160% now.

Uncertainty grows

Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times an agreement in principle was needed by the end of this week if it was to be finalised in time for the March bond redemptions. He said the Greeks were not the problem.

"All the European heads of state said they wanted a deal with a 50% (haircut) and a voluntary agreement," Dallara was quoted as saying. "Some of their own collaborators are not following that decision."

After initial optimism last week that a deal was near, negotiations stalled on Friday over the interest rate Greece must pay on new bonds it offers.

One banking source said official sector creditors had asked for a coupon of less than 4%, irking banks for whom it would have meant losses of over 75% on the bonds.

A second source said the banks were ready to strike a deal if they reached common ground with the EU, IMF and ECB.

Greece has continuously missed its fiscal targets and the latest impasse in talks has prompted speculation that the country may need further financial support to put its debt on a viable footing.

In its fifth year of recession, Greece has repeatedly flirted with bankruptcy in recent months, with only bailout loans from European partners and the IMF agreed on condition of unpopular austerity measures preventing a default.

Papademos played down speculation that Athens would need additional aid to that agreed at a eurozone summit in October.

"I think the funds that have been pledged at the Euro summit, combined with the outcome of the private sector involvement process, should be sufficient in order to support financially the Greek economy," Papademos said.

Uncertainty over fixing Greece's debt crisis is more of a threat to Europe's stability than the downgrade on Friday of nine eurozone countries' credit ratings by Standard & Poor's, British Finance Minister George Osborne said on Monday.

The downgrades were largely expected and traders said pressure on Italian and Spanish bond yields on Monday were offset by the ECB stepping in to buy the bonds.

Bill Gross, the manager of the world's largest bond fund PIMCO, said in a Twitter post that the Standard & Poor's downgrades had made investors "aware" that countries can default and Greece would be the next example.
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