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Crucial debt talks resume in Athens

Written By Ivan Kolev on Thursday, January 19, 2012 | 6:26 PM

ATHENS, Greece -- The Greek government resumed talks with its private creditors in Athens on Wednesday in the hope of sealing a debt relief deal needed to avoid a disastrous default this spring.

The heads of the Institute of International Finance, a global banking association, returned after negotiations stalled last week.

"Talks with private creditors are without a doubt at a very sensitive stage," Greek Finance Minister Evangelos Venizelos told parliament shortly before attending the meeting with top IIF official Charles Dallara.

"We want this (deal) to happen in a way that is safe for Greece -- with Greece in the eurozone -- and safe for the real economy and the financial system," he said.

The so-called private sector involvement, or PSI, deal is meant to write off euro100 billion ($128 billion), or half of the debt Greece owes private bondholders, who would get new bonds with extended repayment periods.

Talks have been held up by a disagreement on interest rates for the new bonds and other "variables," a senior government official told the Associated Press on Wednesday.

He said the government was still considering whether to impose so-called collective action clauses on its bonds. The clauses could force private debt holders resisting a settlement to fall in line with the majority if an agreement is reached.

The official asked not to be identified, citing the sensitive nature of the talks.

Greece needs to clinch the agreement quickly to qualify for more bailout loans before it faces a euro14.5 billion ($18.6 billion) bond repayment on March 20. The bond swap is a key part a new euro130 billion ($166 billion) bailout package in loans and bank support from international rescue creditors. Without the bond swap deal, Greece will be cut off from its rescue loans.

Greece needs to write off some of its borrowings if it is to have a fighting chance of emerging from its debt hole.

It has so far relied on austerity measures, which were a condition for it to receive emergency loans from other its fellow eurozone countries and the International Monetary Fund. The Greek government has cut pensions and salaries, raised taxes and sold state property.

Yanis Varoufakis, a professor of economics at the University of Athens, argued that even with a debt deal, Greece could do little to eventually avoid default.

"Let the truth be revealed. Let's have a default because Greece is insolvent and insolvent entities have to default. It's a law of nature and of society and of reason, and we should simply succumb to that," Varoufakis told AP Television.

"If European leaders are worried about the effect this will have on banks they might as well recapitalize them, not continue to drip-feed the Greek state," he said.

The cumulative effect of the austerity has taken its toll on Greeks, who have held frequent strikes and protests over the past two years.

Unions and employers are to start talks on Wednesday on reducing labors costs, but the negotiations were disrupted when protesters from a Communist-backed labor union occupied the central building where the meetings were to take place.

EU-IMF debt inspectors are back in Athens this week to monitor progress of those reforms aimed at slashing the country's high budget deficits.

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