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Sunday, 5 February 2012

Greece continues sirtaki

Hopes of an imminent agreement between Greece and its private bondholders were dashed on Thursday due to the opposition of some of the Greek political leaders towards additional spending cuts demanded by the lenders as well as a disagreement between the IMF and Germany on the involvement of the ECB in the bond swap.

Greece's creditors doubt the country's ability to carry out all the necessary reforms in order to reduce debt and they demanded additional austerity measures. Greek officials objected, fearing that implementing them would further aggravate an already serious recession in the country.

On the other hand, Greek debt swap negotiations are being held up by a disagreement between the IMF and Germany on the participation of the public sector in the debt haircut. According to the organization a PSI deal is not enough and it is crucial that the ECB as well as EU governments take part in reducing the debt. Germany firmly opposes this solution and presses for additional budget cuts instead, as well as more loans from governments.

Also the head of the Eurogroup, Jean-Claude Juncker expressed his worries with the Greek situation of Thursday, emphasizing that the negotioations will be “ultra difficult.”

The discrepancies resulted in postponing the final decision on the Greek debt deal until next Monday, February 6. The Eurogroup is due to gather on that day in Brussels to discuss the conditions of the Greek bailout.

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