Greek PSI talks heading towards closure

euroThe negotiations between Greece and its private bondholders are moving closer towards a final agreement on Friday. Is seems that the PSI deal will mean a loss of 65 to 70% for the creditors. According to a banking official close to the talks: "The new bond will likely have a 30-year maturity and a grace period of 10 years. It will have a stepped-up coupon structure which will average out in the area of 4 percent."

Jamie Coleman from Forex Live considers the debt swap just a “postponing of the inevitable”: “The renegotiation of Greek sovereign debt is partial. Only the debt held by the private sector is being renegotiated. Many billions are held by the ECB as collateral for bank loans to Greek banks and are not subject to renegotiation. A best-case scenario is that the Greek debt to GDP ratio falls to 120% by the end of the decade. Not too many best-case scenarios have worked out for Greece over the last two years.”

Greece will continue the debt swap talks at 17:30 GMT and will also resume discussions with Troika officials on the additional rescue funds necessary to prevent the country from defaulting in March.

EU fiscal pact to include stricter deficit rules

According to the new EU fiscal pact draft made known on Friday, the Member States' governments decided to toughen the treaty rules, in order to regain market confidence. The main change concerns the introduction of penalty payments for signatory countries which within one year fail to include in their constitutions a rule that structural deficit cannot exceed 0.5% GDP.

In case the deficit target is exceeded, an automatic corrective mechanism will be triggered while the European Court of Justice will be given the power to impose the fines, as it is stated in the blueprint obtained by Reuters: “"If the court finds that the contracting party concerned has not complied with its judgment, it may impose on it a lump sum or a penalty payment appropriate in the circumstances and that shall not exceed 0.1 percent of its gross domestic product." This money would then be used to increase the ESM.

Another change made to the treaty concerns giving the European Commission a possibility to establish a calendar for budgetary convergence.

The new version of the document will be discussed at the upcoming EU finance ministers' meeting on January 30.
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