Greek debt talks fail to find solution

By Alan Beattie and Tom Braithwaite, FT.com

(Financial Times) -- The International Monetary Fund annual meetings wrapped up in Washington on Sunday with widespread concern over the eurozone sovereign debt crisis but no immediate consensus on the solution.

Participants said they were waiting for the ratification of the action plan agreed on July 21 by the eurozone, particularly by the German Bundestag this week, before starting serious...

negotiations on increasing the rescue fund's firepower or asking for a bigger writedown in private sector holdings of Greek debt.

Meanwhile, Greece continued to insist it would not default, despite widespread private pessimism among attendees at the meetings.

Josef Ackermann, chief executive of Deutsche Bank, on Sunday criticised suggestions among some G20 officials about revisiting a planned rescheduling of private bondholdings -- a central part of a planned second eurozone-IMF rescue package for Greece agreed in principle on July 21.

Solving sovereign debt

Wolfgang Schäuble, Germany's finance minister, on Saturday said: "One has to see whether what has been envisaged in June, July, is still sustainable in the light of more recent developments."

But Mr Ackermann, speaking as chairman of the Institute of International Finance, a global association of banks and finance houses, rejected any suggestion of a major revision to current plans, which were based on an IIF proposal. "If we now start reopening that Pandora's box we lose a lot of time and I'm not sure people will be willing to participate," he told reporters. "It was not a contract, but it was a clear agreement in Brussels with the official sector."

The IIF estimates that the reduction, which involves banks voluntarily signing up for one of four options for rescheduling sovereign bonds, will involve a 21 per cent reduction in the net present value of banks' holdings of the debt. But other calculations show a much smaller writedown or none at all, and an insufficient reduction in Greece's debt burden to return it to sustainability. A recent estimate by economists at Barclays Capital said the average reduction in bondholders' net present value would be just 5 per cent.

Eurozone officials also hinted more strongly that the European financial stability facility, the €440bn ($582bn) eurozone rescue fund that will be strengthened by the July 21 deal, could leverage its size by insuring the issuance of debt and perhaps linking up with the European Central Bank.

François Baroin, France's finance minister, on Friday told reporters that there would be no legal bar to the EFSF conducting joint operations with the ECB on the basis of the changes to the fund being ratified by the eurozone parliaments.

However, Mr Schäuble cast doubt on the likelihood of that option, saying: "There are other possibilities than going to the ECB."

Despite many private conversations about an inevitable sovereign debt restructuring in Greece, the official line was that default was unthinkable and implementation of the July 21 deal was the only focus.

Evangelos Venizelos, Greece's finance minister, likened the Greek crisis to a war the country must win and said the government would take the necessary steps "at any political cost".

But he warned that for all the budget tightening Greece has undertaken, recession keeps making the targets tougher, particularly amid "noises, rumours and this famous European cacophony" about a coming default.

Calling for further assistance from the international community, he said: "It is not possible to implement sacrifice, sacrifice, sacrifice with recession, recession, recession."

CNN