Joint talks between Greece and its creditors broke down on Friday with Greece warning of a potentially catastrophic results if a bond swap deal isn’t done in the very near future. This bond swap deal would see creditors voluntarily give up their promised returns which will in turn help Greece slash its debt to more manageable levels and convince the EU and IMF to continue letting the country borrow cash.
Both sides are digging in for what looks like a game of chicken to see who will flinch first. Now is not the time to do this though, as a debt default for Greece would be disastrous.
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, to Reuters.
“Unfortunately, despite the efforts of Greece’s leadership, the proposal put forward … has not produced a constructive consolidated response by all parties.”
Talks had appeared to be going well but began breaking down earlier today. “Yesterday we were cautious and confident. Today we are less optimistic,” said a source close to the negotiations.
“I’m sure that’s exactly what it is. You have a situation where there was an initial agreement to write off at one level, then it’s a write-off at a higher level and I’m sure there’s some people looking at it saying we can get a better deal,” said Gary Jenkins, director of Swordfish Research.
“When you’re dealing with a sovereign, you don’t have a huge amount of tricks up your sleeve, because if they choose not to pay you there’s not an awful lot you can do,” he added.
Economic news is beginning to sound like a broken record as Europe continues to be the main focus for investors around the world. Greece has been the main focus for months, but there are rumblings of multiple credit downgrades coming as soon as today for other countries including France. It should come as no surprise that investors are negatively to news out of Europe today with each of the major stock indexes are down about 1%.