Greece pushes for debt deal, Italy unleashes reforms

senior EU-IMF auditors on a new eurozone rescue loan.
Greece is seeking to slash around 100 billion euros (US$129 billion) from its huge debt through a voluntary bond swap with creditors, a process that would unlock a new eurozone rescue package worth 130 billion euros overall.
The International Institute of Finance, a group representing around 450 financial institutions worldwide, said “progress” had been made and that discussions would continue.
Under the so-called private-sector initiative (PSI), banks and other financial institutions are expected to take at least a 50 percent “haircut” on their Greek debt, which would remove about 100 billion euros from Athens’ massive debt burden of more than 350 billion euros.
The talks have hinged on the interest rate to be offered for new bonds which will replace maturing debt that is being erased.
A deal seems close on a flexible rate of around four percent, Greek newspapers reported last week.
In a sign that an agreement is at hand, the International Monetary Fund said it was ready for talks on extra rescue funds needed to keep Athens from defaulting in March.
The IMF was not originally part of the eurozone bailout agreed in October.
Greece wants an outline of the deal to be ready by Monday, and a full agreement by January 30 when the European Union is scheduled to hold a summit.
It has a looming loan repayment worth 14,3 billion euros on March 20 which it cannot honour without financial assistance.
The meetings with senior representatives from the European Union, the IMF and the European Central Bank – known locally as the “troika” – will focus on the next three years of an economic blueprint adopted by Greece in return for the 130-billion-euro eurozone bailout, and an earlier loan in May 2010.
Greece is under pressure to revise its private-sector wage agreements to reduce labour costs and improve competitiveness.
Greek unions say such a measure would only exacerbate a deep recession brought about by two years of austerity measures already adopted under the EU-IMF economic adjustment plan.
Meanwhile, Italy’s technocratic government under Prime Minister Mario Monti was discussing reforms to liberalise cosseted sectors and breathe new life in the country’s moribund economy.
Numerous sectors of the Italian economy remain sheltered by restrictions from competition, but with the country’s economy likely to have entered a recession and little room for more austerity, reforms to unlock growth have become a top priority.
With the country’s economy set to contract between 1,2 and 1,5 percent this year according to the Bank of Italy, quick action by the government to spur growth will be key to convincing markets Italy will be able to keep on top of its massive debt worth 120 percent of GDP.
Nervous investors have driven Italy’s borrowing costs above 6 percent and even 7 percent at times, levels that economists consider unsustainable in the long term for slow-growing economies with low inflation.
The EU’s economy chief Olli Rehn called on better-off eurozone countries such as Germany to do more to help the bloc overcome its debt-induced crisis.
While troubled countries on the eurozone’s southern rim must act to resolve their own problems, Rehn told the Sueddeutsche Zeitung that countries such as Germany “must not forget how strongly they are benefiting from the euro through stable export markets and a stable currency.”
In an interview with last Tuesday’s Financial Times, Italian Prime Minister Mario Monti urged Germany to help his country and other indebted eurozone members to lower their borrowing costs. – AFP.