Greek debt talks stall over interest rates

There remains a state of deadlock regarding Greece's debt problems, furthering the eurozone crisis and prolonging the uncertainty in the investment market. End Quote

(1888PressRelease) January 30, 2012 - Finance ministers from leading eurozone countries and representatives from the International Monetary Fund have been in deep discussion with private sector creditors who hold Greek government bonds.

It has almost been agreed that the private sector will have to take a 50% "haircut" on the value of existing Greek bonds, in order to give the country a deficit that it is capable of servicing.

However, the sticking point remains the interest rate that will be paid on the new bonds. The private sector wants just over four per cent, but the eurozone and the IMF are pushing for something lower.

Greece is not expected to achieve growth of anywhere near four per cent, and as the eurozone bailout fund and the IMF will be lending Greece the money to pay theses binds, they are pressurising Greece to lower its offer.

With the spectre of a Greek default looming, IMF Managing Director Christine Lagarde is now calling for all parties to stick with negotiations in order to find a workable solution.

"It's a matter of everybody participating, the country delivering on its commitment, private sector participating in the process, that means something that is substantial, that is constructive, also means the euro partners and the European Central Bank playing their respective part as well," she said.

However, Sony Kapur, managing director of advisory group Re-define, said a default might not be such a bad idea, with the idea of a "contagion" debt crisis being created in Ireland or Portugal having been exaggerated.

"I think it's still a road which can be travelled and it's a credible threat to the bond holders to accept a worse deal because they would probably stand to lose a lot more if the default becomes disorderly," he told the BBC Wake Up to Money podcast.

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