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European Debt Crisis

Debt negotiations moving forward in Greece

Jeremy Hobson Jan 20, 2012

Jeremy Hobson: Now let’s get to Greece, where negotiations are underway with international banks in an effort to reduce the country’s debt. Greece has to make a deal in order to get another round of bailout cash and prevent a messy default.

For more, we’re joined live now by Andrew Walker, economics correspondent with the BBC. He’s with us from London. Good morning.

Andrew Walker: Good morning.

Hobson: So Andrew, first bring us up to date on these Greek debt talks and why they matter.

Walker: Well there are reports coming out of Athens that either they have made a deal, or at the very least, are very close to making a deal. And we know some of the headlines — or at least one key headline — was that they were aiming to get a reduction of 50 percent in the face value of the debts owed to international banks. And when I say face value, I mean the final repayment when their loan matures.

And there’s been a lot of difficulty pinning down the details of exactly how much into the future the repayment period should be extended, and what interest payment Greece should make to the banks in the meantime.

And, as I say, the reports are suggesting that they are getting very close. The kind of figures that are coming out of Athens are a delay of 30 years before the final repayment is made, and an average interest payment of something like 4 percent — with it very much loaded toward the later period of that repayment time.

Hobson: Well, lest we get too far into the weeds on this Greek debt stuff, Andrew, tell us why this matters in the grand context of the European debt crisis.

Walker: I think everybody recognizes that if Greece is going to avoid a very messy default on its debts, it needs a second bailout. And the European Union governments and the International Monetary Fund have said: yes, we will provide additional money. But, the eurozone governments say, only if there is a contribution from private sector creditors in the shape of some kind of debt relief.

So if this debt relief is agreed by those banks, then it does pave the way for a second bailout which Greece really does badly need.

Hobson: OK, standby while we bring in Chris Low, our regular Friday guest. He’s chief economist with FTN Financial, and he joins us from New York. Chris, from your perspective, how important are these Greek debt talks?

Chris Low: Good morning Jeremy. Well, you know, two months ago, when I talked to my European economist friends, they were terrified of the prospect of a Greek default. They talked about the first domino falling, and a financial crisis which might rip through the European banking system. Since then, they’ve actually become quite relaxed about the idea.

Hobson: Why is that?

Low: It’s primarily because the European Central Bank — in just the last quarter or so — has put in place several features that essentially ensure that if European banks need cash, they can get it. That they can borrow from the European Central Bank as long as they post collateral.

And they actually have some pretty significant, deep resources available if needed. And because of that, they say, the pressure is now all on Greece to get this deal done. They think it’s actually increased the odds of getting a deal done, because honestly they don’t care if it works or not.

Hobson: Andrew, quickly back to you — is that your sense? I mean, do people not care if this works or not?

Walker: I wouldn’t put it as strongly as that. I mean, I think that there is certainly a view in the financial markets that the degree of horror with which a Greek default is viewed has certainly faded quite considerably. But I think an orderly restructuring of the debt — rather than a disorderly default when a big repayment comes due in March — I think that they’d rather see the first of those two scenarios.

Hobson: Andrew Walker, economics correspondent for the BBC and Chris Low, chief economist with FTN Financial, thanks to both of you.

Low: Thank you Jeremy.

Walker: My pleasure.

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