Greece Hopes for Debt Swap Deal by End of January

Greece hopes to effect a voluntary debt restructuring deal by the end of January, before the country heads into elections to replace its interim government headed by Prime Minister Lucas Papademos.

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“We will proceed smoothly and with the maximum possible speed,” said Finance Minister Evangelos Venizelos after separate meetings with the head of bank lobby Institute of International Finance, Charles Dallara, and with European Union, International Monetary Fund, and European Central Bank inspectors, on key aspects of a planned 130 billion-euro bailout for Greece.

Banks represented by the IIF agreed in October to write down the national value of their Greek bond holdings by 50 percent in exchange for new paper as part of the latest rescue plan for Greece.

The writedown will help reduce Greece’s debt ratio to 120 percent of GDP by 2020 from over 160 percent in 2011. However, key elements of the plan, including the coupon and discount rate, which determine the cost for banks, are still being discussed.

Discussions today revolved around a lower coupon rate for the Greek government and smaller losses for investors, said one banking source involved in the talks.

“Some common ground is forming in principle on finding a structure that will boost the quality of the new bonds — for the final NPV (net present value) loss to be smaller, and for the state to not have to pay a high coupon, but there is still a way to go,” the source said. NPV is a measure of the current worth of the bonds’ future cash flows.

Talks with bankers will continue on Tuesday, as will meetings with EU, IMF, and ECB officials, which are scheduled to wrap by by week’s end before resuming in January.

“The talks are critical and difficult. The country is being asked to take important and crucial decision and there is no room for us to be distracted,” Venizelos said, warning that the coalition government, put in place at the end of November, needs to stay in place until the new bailout is agreed upon.

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“The country cannot afford to be dragged into a pre-election period while we still need to wrap up these procedures,” Venizelos told a news conference. General elections are tentatively scheduled for February 19.