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War of words over Greek debt heats up

ZURICH (AP) — The war of words between Europe and private investors heated up Tuesday as talks to reduce Greece’s massive debt burden hit an impasse.

While the finance ministers of the countries that use the euro as their currency adopted a tough stance on how much rescue money they would pump into the Greek economy, the head of the group that represents the country’s private creditors — banks and other investment firms — warned that the future of Europe was being threatened if a voluntary debt reduction deal over Greece was not agreed.

Charles Dallara, the managing director of the Institute of International Finance, warned that Europe is putting a “decade of progress at risk” over the management of Greek debt-reduction talks, which stalled over the weekend.

“European stability is at stake as well,” Dallara said at a news conference in Zurich.

On the front line of Europe’s sovereign debt crisis, Athens is trying to get its private creditors to swap their Greek government bonds for new ones with half their face value, thereby slicing some $130 billion off its debt. The new bonds would also push the repayment deadlines 20 to 30 years into the future.

However, the main stumbling block over the past few weeks to securing this deal has been the interest rate these new bonds would carry. A high interest rate could buffer losses for investors, but would also require the eurozone and the International Monetary Fund to put up more than the $169 billion in rescue loans they promised in October.

Dallara said the private creditors, which include banks, insurance companies and hedge funds, are acting in good faith and the proposal made last week was in the spirit of October’s agreement. At that time, Europe’s leaders said Greece should look to reduce the value of its private sector debts by 50 percent, or $130 billion.

In the early hours of Tuesday, eurozone politicians drew a firm line on the Greek debt restructuring.

Jean-Claude Juncker, the Luxembourg prime minister who chaired a meeting of finance ministers on efforts to fight the crisis, said the average interest rate over the lifetime of the new Greek bonds must be “clearly below 4 percent,” with an average rate of less than 3.5 percent for the period until 2020. That is below the more than 4 percent average demanded by the Institute of International Finance, which has been leading negotiations for the private bondholders.

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