EU: Greek deal frays as IMF threatens walk-out on debt buy-back impasse

The Telegraph ^ | 11/29/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

The eurozone's debt relief plan for Greece has hit serious trouble within days as banks and pension funds balk at fresh losses, raising fears that the package could unravel before a deadline in mid-December.

The International Monetary Fund said on Thursday that it would not disburse funds under its part of the EU-IMF package unless the eurozone delivers on a bond "buy-back" scheme, which is supposed to cut Greece’s burden by 10pc of GDP and is deemed crucial for restoring long-term viability.

If the IMF withdraws, Finland and Holland will also pull out of the programme. "This has become a really big problem," said Raoul Ruparel from Open Europe.

The dispute comes as Moody’s said the EU-IMF deal to unlock €44bn in bail-out payments to Athens merely papers over cracks and does little to alleviate Greece’s "extreme economic and social fragility".

"We believe that the country’s debt burden remains unsustainable," it said. Moody’s warned that there can be so lasting solution until EU states and official creditors agree to write down their holdings, now the lion’s share.

Private investors are furious at demands that they take a second "haircut" of 70pc on residual holdings, after already taking a 53.5pc loss earlier this year, while official creditors still refuse all loses.

Greek banks told finance minister Yannis Stournaras on Thursday that they cannot take part in the "buy-back" plan unless the Troika-imposed terms of Greece’s bank recapitalisation scheme are relaxed. They still hold €22bn of Greek bonds, mostly used as collateral for raising money under the European Central Bank’s emergency liquidity assistance (ELAs).

"It is our patriotic duty to make the scheme succeed. It must succeed," said Mr Stournaras, although he also alluded vaguely to a "Plan B".

Mr Ruparel said the burden will have to fall on

[Viennacon]

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