Finance Ministers Reject Private Bondholders’ Greek Debt Offer

Euro-zone finance ministers have rejected an offer made by private bondholders to restructure Greece’s debts, saying they could not accept demands for a coupon of four percent on new, longer-dated bonds to be issued in exchange for their existing Greek holdings.

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Finance ministers sent negotiators back to the drawing board after meeting in Brussels on Monday, raising the risk of Greek default. But banks and other private institutions represented in negotiations by the Institute of International Finance have said a 4 percent coupon is the least they will accept if they are also to accept a 50 percent writedown on the nominal value of their debt holdings.

Greece says it is not prepared to pay a coupon of more than 3.5 percent, and euro-zone finance ministers backed that position at Monday’s meeting. Jean-Claude Juncker, president of the Euro Group, said that Greece must pursue a deal with private bondholders where the interest rate on the replacement bonds was “clearly” below 4 percent.

“Ministers asked their Greek colleagues to pursue negotiations to bring the interest rates on the new bonds to below 4 percent for the total period, which implies the interest comes down to well below 3.5 percent before 2020,” said Juncker.

The aim of restructuring is to reduce Greece’s 350 billion-euro debt load by around 100 billion euros, cutting it from 160 percent of gross domestic product to 120 percent by 2020, a level the European Union and International Monetary Fund believe will be more manageable.

However, the 2020 goal is every day looking more and more like a long shot, as negotiations with private bondholders have been going on for nearly seven months now without a breakthrough. Failure to reach a deal by March, when 14.5 billion euros of Greek bonds will reach maturity, could result in a disorderly default.

Still, Greece and its private creditors, despite their differences, do appear to be slowly converging on a deal in which bondholders would take a real loss of 65 to 70 percent on their Greek bonds, giving a nominal reduction of 50 percent, according to officials close to the negotiations.

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