Greece began a round of talks with the EU, the IMF and bankers on Monday, with negotiators facing a tight timetable to decide key aspects of a new bailout plan to pull the country out of its economic crisis.
Inspectors from the EU, the ECB and the IMF arrived at the finance ministry for talks that will also include checking on Athens' slow progress since a first rescue plan, agreed over a year ago in an effort to stem a crisis that has since dragged the whole euro zone into deep turmoil.
Finance Minister Evangelos Venizelos is then scheduled to meet the managing director of bank lobby IIF, Charles Dallara, at about 12:00 a.m. (British time) to try to make progress on a voluntary debt restructuring, an important component of the new 130-billion euro (111 billion pounds) bailout programme, a finance ministry official said.
Athens narrowly escaped bankruptcy this month after its EU partners and the International Monetary Fund agreed to release an 8-billion aid tranche despite weak revenues and slow reforms.
But it needs the new bailout plan -- with contributions from official lenders as well as banks -- to stay afloat next year and to face a major bond redemption in March. It must also wrap up the talks before general elections scheduled for February19.
It would be desirable if the (debt restructuring or PSI) talks starting today led to an initial agreement by the end of the week, otherwise we will be running short of time, a Greek banker told Reuters on condition of anonymity.
If there is no initial deal by the end of the week, then it will be difficult to complete the PSI (private sector involvement) in January and it could delay the election.
Banks represented by the Institute of International Finance (IIF) agreed in October to write down the notional value of their Greek bond holdings by 50 percent in exchange for new paper.
BOND SWAP TALKS
The writedown will help to reduce Greece's debt ratio to 120 percent of GDP by 2020 from over 160 percent this year. But key elements of the plan such as the coupon and discount rate, which determine the cost for banks, are still being discussed.
The basic disagreement between Greece and bondholders is that investors want to exchange the full 50 percent of nominal value in bonds and the cash to be used as guarantees for the principal, the Greek banker said.
The coupon of the new bonds will also be discussed and there could be a compromise at about 6 percent.
Another banking source close to the talks said the negotiations would cover a broad array of issues.
There is no consensus as things stand, he said.
It's not only about financial terms but also about the legal structure and what law will prevail, whether there will be collective action clauses and what kind of credit enhancements will be included.
The talks with bankers might continue on Tuesday, while the meetings with the EU, IMF and ECB officials -- dubbed the troika -- are scheduled to wrap up by the end of the week before resuming in January.
The PSI will be high on the troika's agenda. Budget revenue and spending for 2011 will be examined, as well as whether the revised targets for this year can be met, a government official said. For 2011, if current spending and revenue trends continue, the deficit will be at about 10 percent of GDP and not (the target) of about 9 percent.
Delays on a plan to put 30,000 state workers on the road to redundancy this year will also be discussed, the official said, adding that state organisations and public services had so far only notified about 6,500 people.
(Additional reporting by George Georgiopoulos; Writing by Ingrid Melander; editing by Stephen Nisbet)