Berlin says banks using 'scare tactics' in Greek debt talks

BERLIN HAS dismissed as “scare tactics” a demand by Greece’s creditor banks for French and German leaders to break the deadlock in talks to reduce Greek debt by €100 billion.

Debt swap talks between Greek officials and its creditors to voluntarily swap old bonds for new securities have stalled over the scale of the losses to be imposed. Bankers have called on German chancellor Angela Merkel and French president Nicolas Sarkozy to intervene.

They complain that German and French negotiators are demanding private-sector involvement above the 50 per cent voluntary limit agreed in October.

German negotiators are understood to be proposing interest rates of 2 to 3 per cent on the new coupon, which would increase the losses absorbed by banks to more than 80 per cent on present net value terms.

“There is an urgent need for agreement to inject an element of stability,” said Charles Dallara, head of the Institute of International Finance (IIF), which is representing bond holders in the talks.

He said yesterday that the banks were “very surprised” at “completely unreasonable” interest rates offered to them.

Dr Merkel’s spokesman said yesterday she had no plans to get involved in the negotiations. “The basis of talks is the benchmark data agreed in October,” said Steffen Seibert.

In October, EU leaders and banks agreed a plan to reduce Greece’s debt to 120 per cent of gross domestic product by 2020.

Bank officials have warned that the stand-off increases the risk of a Greek sovereign default.

German government officials say they believe a Greek sovereign default, arising from a non-voluntary deal, would carry with it a manageable risk to the rest of the euro zone. Thus, they are prepared to hold out and call the banks’ bluff.

Berlin finance ministry official Martin Kotthaus described the banks’ appeal as “negotiating tactics”. “In New Zealand rugby they always have the Haka to scare the other side,” he said. The IIF broke off talks with the Greek government last Friday.

In Brussels, a spokesman for the European Commission insisted yesterday that a deal on a private-sector contribution was still within sight. “We understand the talks will resume soon between the Greek authorities and the IIF representative and, again, we are confident that this second part of the talks will conclude shortly.”