Greece Running Out of Time as Debt Talks Stumble

Greece is running out of time to avoid becoming the first euro nation to default after talks with lenders stalled ahead of a March 20 bond payment that will cost 14.5 billion euros ($18 billion) the country doesn’t have.

Prime Minister Lucas Papademos is due to meet tomorrow with a group representing private Greek bondholders after a five-day break to discuss forgiving at least half of the nation’s debt in the euro area’s first sovereign restructuring. Greece’s official creditors begin talks Jan. 20 on spending curbs and budget cuts that will determine whether to disburse additional aid. Edward Parker, a managing director at Fitch Ratings in London, said today Greece is unlikely to make next month’s bond payment.

“The next few weeks will be the most difficult in the Greek program,” said Athanasios Vamvakidis, a foreign-exchange strategist at Bank of America Corp. in London. “All this needs to be completed by mid-March to avoid a disorderly default. Not an impossible task, but clearly very challenging with very much at stake.”

Until the debt swap and loan accord are in place, the country faces “acute economic risks,” Papademos said on Jan. 13. Greece sold 1.625 billion euros of 13-week Treasury bills today at a yield of 4.64 percent, with short-maturity debt sales the only source of market financing available for the nation. Bonds repayable in 2022 are worth about a third of their face value.
Tough Talking

Greece and its creditors are “running out of time,” Moritz Kraemer, the head of sovereign ratings at Standard & Poor’s Corp., said in an interview yesterday with Andrea Catherwood on Bloomberg Television’s “Last Word.” Kraemer said he can’t say “whether there will be a solution at the end of the current rocky negotiations. There’s a lot of brinkmanship going on right now.”

Concern that Papademos won’t have domestic backing to achieve spending cuts needed to win more funds or that they will further hamper growth helped drive Greek two-year yields to an all-time high of 185 percent on Jan. 10. The yield on Greek benchmark debt maturing in October 2022 fell 46 basis points to 33.55 percent today, after hitting a record of 36.14 percent on Dec. 21.

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of a bailout plan agreed on Oct. 26. Its 4 percent notes due in August 2013 trade at about 27 cents. Fitch says an agreement would amount to a “default event” once implemented, while the International Swaps and Derivatives Association says it won’t trigger credit-default swaps bought by investors as insurance against the country failing to meet its obligations.

Bloomberg