Greece holds out hope on deal with bondholders

Athens is trying to get its private creditors — banks and other investment firms — to swap their Greek government bonds for new ones with half their face value, thereby slicing some 100 billion euros (US$130 billion) off its massive debt. The new bonds will also push the repayment deadlines 20 to 30 years into the future.

But Greece and representatives of the private creditors have been unable for weeks to agree on the interest rate those new bonds would carry. A high interest rate could buffer losses for the investors, but would also require the eurozone and the International Monetary Fund to put up more than the 130 billion euros in rescue loans they promised in late October.

After negotiations that dragged deep into the night, eurozone finance ministers took a firm stand on the debt restructuring, capping the average interest rate over the lifetime of the new bonds “clearly below 4 percent,” according to Jean-Claude Juncker, the Luxembourg prime minister who chaired the meeting. For the period until 2020, the average rate will be limited at less than 3.5 percent, he added.

Those caps are far below average interest rates of more than 4 percent demanded by the Institute of International Finance, which has been leading the negotiations for the private bondholders.

They underline that the eurozone and the IMF are unwilling to increase new rescue loans above the promised 130 billion euros, even though Greece's economic situation has deteriorated since then.

After already granting Greece a 110-billion-euro bailout in May 2010, the eurozone and the IMF are limiting their exposure to the country, which has repeatedly failed to hit budget and reform targets required in return for the financial aid.

But the caps will also seriously test the willingness of private bondholders to agree to a debt deal voluntarily. IIF head Charles Dallara over the weekend had characterized the bondholders' most recent offer as the best possible proposal.

Greek finance chief Evangelos Venizelos was nevertheless confident that the two sides could find common ground.

“We have the green light from the Eurogroup to close the deal with the private sector in the next few days,” Venizelos said in Brussels.

The alternative to a voluntary deal would be to force losses onto investors — a move that the eurozone has so far been unwilling to make. Officials fear that a forced default could trigger panic on financial markets and hurt bigger countries like Italy, Spain or even France.

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