Greece, Creditors Cite Progress on a Debt Pact

The Wall Street Journal

By ALKMAN GRANITSAS, MATINA STEVIS and COSTAS PARIS

… The reduction, if agreed, would save Greece €4 billion a year in interest….

… There is nothing voluntary about all this," the banker said. "We have a gun pointing at our heads…

ATHENS—The Greek government and its private-sector creditors appeared to be closing in on a debt-restructuring deal on the basis of new proposals, raising hopes it would pave the way for another multibillion-euro bailout for the country.

That optimism helped fuel a rally in financial markets across Europe, with the Athens stock exchange rising 2.9% and Greek banking stocks gaining 5%.

Greece's efforts to get relief from its private-sector creditors recently have faltered. This week's resumption of the talks came after talks between the two sides broke down Jan. 13 amid differences about the future interest rate Greece would pay bondholders.

What rate is chosen could determine how much of a loss creditors will take on the current value of their Greek debt holdings.

After 2.5 hours of talks late Thursday, both sides announced that progress had been made in the negotiations with another meeting scheduled for Friday.

"The climate was good. There was a very fundamental and long-lasting discussion," Finance Minister Evangelos Venizelos said. "Progress was made and the talks will continue tomorrow at midday."

Earlier, Mr. Venizelos said in Parliament that many details of the bond-swap plan need to be finalized by Monday's meeting of euro-zone finance ministers, who will discuss their share of the Greek aid plan.

—Alkman Granitsas

"We are now at the moment of truth; everyday many important things are taking place," he said.

A separate statement, issued by the Institute for International Finance, a Washington-based lobby group representing the world's biggest banks, also confirmed that the discussions had advanced and described Thursday's talks as "productive."

An agreement would cut Greece's total debt of €360 billion ($464.8 billion) by as much as €103 billion and is part of a new bailout loan for Greece amounting to €130 billion that Europe and the International Monetary Fund have promised Greece to cover its financing needs through 2015. The reduction, if agreed, would save Greece €4 billion a year in interest.

The amount of public support for Greece will depend on the reduction the private sector makes to Greece's total debt, with both sides hoping for the best deal.

The main dispute between the two sides is related to the annual interest payments on new bonds that would be exchanged for the old.

The institute is seeking an annual coupon of 4% to 5%, arguing it is the absolute lower limit of any deal that could be described as voluntary, according to people familiar with the talks. Some euro-zone governments, led by Germany and supported by the IMF, have been pushing for an interest rate of well below 4%, putting more of the burden on the private-sector creditors.

To bridge the difference, the institute, led by Managing Director Charles Dallara, is now proposing the new Greek bonds carry an interest rate starting below 4% and rising every two years, said a European Union official familiar with the talks.

Under discussion is a coupon starting at around 3.6% to 3.7% that will progressively increase over time. Mr. Dallara will put this proposal to the banks and could come back with the reaction as early as late Thursday, said a Greek government official.

The coupon on the new bonds would rise according to a timetable along the range of the maturity, by every two, three or four years, or closer to the maturity of the new bonds, explained a banker involved in the talks.

"There is nothing voluntary about all this," the banker said. "We have a gun pointing at our heads."

Thursday's negotiations come one day before Greece launches separate talks with its international creditors on the new bailout program after the IMF's executive board, meeting in Washington, gave the nod for its staff to start official negotiations.

Top officials from the European Commission, the European Central Bank and the IMF, known as the troika, are expected to arrive in Athens on Friday to start negotiations with Greece on that aid deal.

Greece and its European partners hope the outlines of that new bailout package can be ready for a Jan. 30 EU summit. In March, Greece faces a €14.4 billion bond redemption it can't pay without some form of financing from its European partners and the IMF.

— Stelios Bouras in Athens contributed to this article