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10 December 2023

Greek debt talks loom large


The eurozone debt crisis hung heavily over the Davos forum on Saturday as global economic leaders tried to talk themselves and world business into a more upbeat frame of mind.

At the forefront of concerns were write-down talks in Greece, which had dragged into the weekend and now threaten to overshadow an EU summit on Monday designed to showcase the continent's plans to escape the debt trap.

"The fact that we're still, at the start of 2012, talking about Greece again is a sign that this problem has not been dealt with," British finance minister George Osborne told a public panel of senior finance officials.

"The danger here is that the tail wags the dog throughout this crisis, in other words the inability to deal with the specific problems in the periphery causes shockwaves across the whole European economy and the world economy."

European and eurozone officials at the World Economic Forum, an annual get together of the great and the good in global business and politics, have spent the weeks attempting to drum up optimism on the debt talks.

But as the five day talking shop drew to an end, Greek leaders were still locked in talks with private lenders over the details of a plan to wipe 100 billion euros from their sovereign debt -- and thus avoid a messy default.

The drawn out talks have undermined attempts to contain the crisis and shore up bigger eurozone economies, to the frustration of leaders from the emerging economies and the rest of the developed world.

"You need decisive action. You need overkill. Confidence must come from decisive actions from governments," declared Donald Tsang, chief executive of Hong Kong's autonomous regional administration.

"Two months ago in Greece you could make do with a 20 percent haircut, now even 50 percent is not easy. Maybe 70 percent is needed, so do it quickly. You need resolution and decisiveness."

A Greek finance ministry official reported "great progress concerning technical and legal matters" but said there "is still a lot of work left to do", leaving it open as to whether there would be a deal this week.

World Bank chief Robert Zoellick praised the European Central Bank for increasing liquidity for eurozone banks to enable them to buy more sovereign debt, but warned that this could only be a stop-gap measure.

"I'm glad the ECB took action. But this buys time, you still have to act," he said, as the world waits to see if Monday's summit will produce agreement on a new "fiscal compact" setting in stone the bloc's deficit-cutting strategy.

"No-one is immune in the current situation. It's not just a eurozone crisis it's a crisis that could have collateral, spillover effects in the rest of the world," IMF director Christine Lagarde warned delagates.

"Now is the time. There has been a lot of pressure building in order to see a solution come about," she said, urging International Monetary Fund members to give her the 500 billion dollars she needs to stock as a bail-out fund.

"And it's for that reason that I'm here, with my little bag, to collect a bit of money," she said, to laughter and applause..

On Friday, European Central Bank president Mario Draghi and US Treasury Secretary Timothy Geithner expressed optimism that the eurozone had turned a corner, but markets closed lower amid jitters over the Greek debt talks.

Draghi gave an upbeat assessment of the situation two years after the debt crisis started infecting the eurozone's weaker economies, although he urged governments to work faster to turn plans into action.

"The amount of progress is outstanding," he said. "If you compare today with even five months ago, the eurozone area is another world."

Draghi said that the fiscal compact most EU states -- aside from Britain -- are negotiating is crucial to efforts to resolve the crisis, praising governments' willingness to give up sovereignty.

The deal under discussion in Athens would see private creditors take a "haircut" of at least 50 percent on 200 billion euros in debt. Previous talks stalled over the amount of interest to be paid on the remaining debt.

Any failure to strike a deal could trigger an uncontrolled default, which would be an economic disaster for Greece itself and a threat to banks holding too much sovereign debt while piling pressure on other eurozone states.

The Financial Times, meanwhile, reported that Germany wants Greece to surrender sovereignty over fiscal policy to a eurozone commissioner before it gets a second bailout -- a move that would be sure to be controversial

The eurozone's woes were again underlined when credit rating agency Fitch cut the ratings of five of its members including Italy and Spain, citing their poor finances and vulnerability to sharp turns in market sentiment.

However speaking the day after the US Federal Reserve cited the eurozone crisis as a reason for trimming its growth forecast, Treasury Secretary Timothy Geithner said there were signs the worst of the crisis was over.

"Europe is making some progress," he told delegates, saying that over the past two months they had laid the foundations for a "more credible framework".

The Davos forum was due to end on Sunday, at which point the financial world's eyes will switch to Brussels and the much anticipated EU summit.