Greece Flashes Warning Signals about Its Debt

WASHINGTON - By the standards of his frenzied schedule here last week, the meeting on Friday between Yanis Varoufakis, the Greek finance minister, and Lee C. Buchheit, the dean of international debt lawyers, was a quiet one.

There was none of the media scrum that had followed Mr. Varoufakis around town during the semiannual meetings of the International Monetary Fund and World Bank, as he paid calls on the I.M.F. chief, Christine Lagarde; the head of the European Central Bank, Mario Draghi; the United States Treasury secretary, Jacob J. Lew, and even President Obama.

But the get-together with Mr. Buchheit carried critical meaning, according to experts here. After all, it was Mr. Buchheit who helped broker Greece’s most recent debt refinancing, in 2012.

As Greece now gropes for a resolution to its current financial problems, the meeting suggests Athens might still be holding out hope for a restructuring of its debt burden of 303 billion euros, or $327 billion.

What Mr. Varoufakis and Mr. Buchheit discussed is not publicly known, and neither would comment on the meeting. But that Mr. Varoufakis might still be exploring a restructuring underscores just how close Greece is to defaulting on its staggering debt, billions of euros of which must be repaid in the coming weeks.

As the eurozone braced for the prospect of a default, financial markets were jittery last week and Greece’s own short-term borrowing costs were soaring. Repercussions of such a default are so difficult to predict that European officials have spent the last five years trying to avoid one.

Over the weekend, senior European officials said that while the Greek debt situation was dire, they still believed an agreement would be reached. And the United States, starting at the top with Mr. Obama, is actively engaged in pushing both sides to come together to prevent a market-rattling default.

After two international bailouts for Greece since 2010, about 90 percent of its debt is owed to its eurozone neighbors, the I.M.F. and the European Central Bank. At the moment, not one of those lenders is showing a willingness to give any additional payback relief to Mr. Varoufakis and the new left-leaning government in Athens.

Mr. Varoufakis’s next formal meeting with his country’s creditors is set for Friday in Riga, Latvia, where eurozone finance ministers are to assemble for their monthly gathering. Wolfgang Schäuble, the powerful German finance minister, said here last week that no one should expect the meeting on April 24 to resolve anything.

Unless the creditors agree soon to release the next allotment of bailout money, Greece could have trouble making a $763 million payment to the I.M.F. on May 12. It almost certainly would not be able to meet the €11 billion in payments to the European Central Bank, the I.M.F. and payments on Treasury bills in June and July.

Mr. Varoufakis’s main message in Washington was that Greece was doing its best to carry out painful economic overhauls called for under the bailout program, while remaining true to his government’s anti-austerity mandate. “We know we are bound to a program,” Mr. Varoufakis said in an interview late last week, before his private meeting with Mr. Buchheit. “But there is another principle here: democracy.”

But the Greek government and its lenders remain far apart. Many European and I.M.F. officials are now openly complaining that Mr. Varoufakis is expending too much energy as a celebrity economist - he was a top draw at a panel discussion here last week at the Brookings Institution, the liberal organization - than on coming up with a viable plan to satisfy creditors.

In particular, Europe and the I.M.F. are furious that Greece has still not changed its generous pension system. Mr. Varoufakis has even gone in the opposite direction by increasing pension payments to lower-income workers.

“We still do not have a comprehensive, detailed plan,” one of Greece’s senior-most creditors said here last week. “Plus, the numbers just don’t add up.” The official spoke on the condition of anonymity.

Mr. Buchheit, a lawyer at Cleary Gottlieb Steen & Hamilton, has for more than 30 years represented governments that are unable to pay their debts. He was the brains behind Greece’s €200 billion debt restructuring in 2012, at a time when the specter of a Greek default - and the potential that a country might be the first member to leave, or be forced out of, the euro currency union - had the eurozone in a state of crisis.

The plan brokered by Mr. Buchheit, which required many private holders of Greek debt to accept big losses as part of the refinancing, was a last-minute resolution.

For now, Greece is living hand-to-mouth. It has been dipping into the reserves of various state bodies to pay monthly pension and wage bills. A senior official in the Finance Ministry said that there was about €2 billion of cash left to tap in this regard and that the government should be able to finance itself through Friday.

When Mr. Varoufakis flew on short notice to Washington on Easter Sunday to ask Ms. Lagarde for some payment flexibility, he said publicly that Greece intended to meet its obligations. The statement at the time was taken as a commitment by Greece to do whatever it took to pay the I.M.F. and others.

Privately, however, Mr. Varoufakis told colleagues in Washington last week that he purposefully used the word “intend” as opposed to “will” in his public statements on Greece’s payment plans, according to people close to the finance minister who spoke on the condition of anonymity.

Mr. Varoufakis is also well aware that if Greece continues to meet its payment schedule as currently mapped out, the country will end up paying about 12 percent of its gross domestic product to its creditors during his first term as finance minister.

He has said that such a dynamic is not sustainable for a left-wing government elected on a platform of putting the interest of Greece’s electorate before its creditors. The country was just emerging from a deep recession before the January elections and is thought to be slumping back into one.

European creditors and the I.M.F., meanwhile, have made it clear that they will not accept a delay in payment or a simple forgiveness of part of the debt - the sort of “haircut” that Mr. Buchheit persuaded private holders of Greek debt to accept in 2012.

“In practical and political terms, a nominal haircut for Greece is ruled out,” Jeroen Dijsselbloem, the Dutch finance minister who represents European creditors, said in an interview on Friday.

But many outside experts are saying that the cycle of creditor-imposed austerity in Greece must stop and that the only clean way to alleviate it would be through a significant debt cut.

“Greece’s official-sector debt should be forgiven,” said Ashoka Mody, a former senior economist at the I.M.F. who oversaw the fund’s austerity program in Ireland. “And we really need to get rid of this Washington-Berlin-Brussels supervision of Greece - this is the most corrosive part of the arrangement, and it undermines both Greece and Europe.”

Even if Mr. Varoufakis and Mr. Buchheit did discuss some sort of a refinancing when they met on Friday, it is not certain that Mr. Buchheit would be able to wield much influence this time around. Although he has done some public-sector debt restructurings, Mr. Buchheit is better known for forcing private-sector bondholders to accept losses.

In 2012, such bondholders held a majority of Greece’s debt. This time, private investors own just 10 percent of Greece’s bonds. Their taking “haircuts” would not provide much help.

But for Mr. Varoufakis, the fact that the world’s leading debt default lawyer will be advising him sends a powerful signal.

Since becoming finance minister, Mr. Varoufakis has been wagering that Europe - and Chancellor Angela Merkel of Germany in particular - will not want to be blamed for forcing Greece into default and out of the eurozone. With the debt clock ticking, and Greece fast running out of cash, the coming weeks will reveal the wisdom of that bet.

(Πηγή: www.nytimes.com)