Debt talks falter, Greeks warn of disaster

Fri Jan 13, 2012 12:45pm EST
 
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By Dina Kyriakidou

ATHENS (Reuters) - Talks between Greece and its creditor banks to slash the country's towering debt pile broke down on Friday, with the Greeks warning of "catastrophic" results if a deal to swap bonds is not reached soon.

The sides remain divided over the interest rate Greece will end up paying, which determines how much of a hit banks take.

Athens needs an agreement, seeing creditors voluntarily giving up a lot of their promised returns, to reduce its debt to more sustainable levels and convince the European Union and International Monetary Fund to keep lending it cash.

Both sides appeared to be digging in their heels, in what analysts said looked like a high stakes poker game in a final attempt to convince private bond holders to take some losses to avoid a disorderly default.

It would come via a swap between old bonds teetering on the brink of default and new ones for which banks would take a big hit. Without a deal, banks could lose even more and Greece would be threatened with default and possibly euro zone ejection.

"Discussions with Greece and the official sector are paused for reflection," said the Institute of International Finance (IIF), which leads talks for private bond holders.

"Unfortunately, despite the efforts of Greece's leadership, the proposal put forward ... has not produced a constructive consolidated response by all parties."

Greek negotiators earlier warned that failure to reach a deal would be disastrous for Europe.   Continued...