European Leaders Optimistic on Greek Debt Deal

Posted January 27th, 2012 at 1:05 pm (UTC-5)
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European officials are voicing optimism that Greece will soon complete an agreement with its private creditors to cut $130 billion of its debt.

European Union economic chief Olli Rehn told the world's elite business leaders meeting at the Swiss ski resort of Davos on Friday that Greece is “very close to a deal,” perhaps in the next few days. The country's prospective pact with 32 large financial institutions would cut Greece's debt owed to the private lenders by 50 percent, but an agreement on key details of the deal has proved elusive.

Greek officials were set to resume talks with top bank negotiators later Friday, even as European leaders continued to press the Athens government to impose more unpopular austerity measures. Greece is seeking approval of a new $169 billion bailout, its second in two years, to avoid defaulting on its financial obligations in March. But European officials say the debt-ridden country will not get the money if it does not reach agreement with the lenders and cut its own spending.

Enda Kenny, the prime minister of Ireland, another country that was forced to secure an international bailout, told the global business leaders in Switzerland that Europe has itself to blame for the two-year governmental debt crisis.

Mr. Kenny said his countrymen share in the blame for Ireland's financial plight.

Greece's negotiations with its private creditors are centering on what interest rate the large financial institutions are willing to accept on the revised Greek bonds they hold. The lenders are pressing for a 4 percent rate, but European leaders are demanding 3.5 percent, to ease Greece's borrowing costs.

Rehn said Thursday that Greece's public creditors may have to deliver more financial aid to cut its staggering debt because the prospective deal with private lenders is not likely to be big enough.

His suggestion that the 17-nation bloc that uses the common euro currency and the European Central Bank may have to add money to the Greek debt relief effort is an idea that numerous European leaders have opposed.

The continent's leaders are pressing Greece to reach a new debt deal with its private creditors that by 2020 would cut the country's financial obligations to 120 percent of the country's annual economic output. But the prospective debt relief package with the private lenders would not reach that mark, and perhaps leave a funding shortfall of as much as $19 billion.