Bailouts

The Beltway Insider Trying for a Greek Deal


If an agreement is reached in coming days to reduce Greece’s debt burden, markets will calm, dire predictions about the euro will fade, and Charles Dallara may finally get a solid night’s sleep. Since July, Dallara has shuttled among Greek and European Union authorities and the banks, hedge funds, and other financial institutions he represents in the seemingly endless negotiations that all parties hope will lead to a second Greek bailout. No matter what, Dallara’s side will lose. The private debt holders, who hold a huge portion of Greece’s €200 billion ($262 billion) debt, are expected to accept a 70 percent or more reduction in the value of their investments.

Dallara walked into this mess because he is managing director of the Institute of International Finance, a little-known Washington trade group of more than 450 banks and other financial organizations from 70 countries. He has likened the negotiations to “getting on the Coney Island roller coaster,” as he told the BBC last fall. “You take some sharp turns, they’re unexpected, and it rattles you around a little bit, but then it settles out and you have to move forward.” His job involves balancing the interests of the IIF’s diverse members, from state-supported banks, who want a deal quickly to calm debt markets, to hedge funds desperate to protect their investments.

His job is also complicated—if not outright frustrating—because his power to make a deal is limited. While he propels the talks from one meeting, and European capital, to the next, decision making rests more with the IIF membership and with Josef Ackermann, chief executive officer of Deutsche Bank (DB) and IIF chairman. In the wee hours of Oct. 27, Dallara called Ackermann at least three times seeking support for what was supposed to be a final compromise in a debt writedown. Negotiators for the banks were summoned at midnight to European Union President Herman Van Rompuy’s office and were presented with an ultimatum. At about 3 a.m., Dallara got Ackermann’s approval to pledge that bondholders would accept a 50 percent writeoff on the face value of their holdings.

That deal fell apart after Greece’s then-Prime Minister, George Papandreou, unexpectedly called for a referendum on the package. Dallara was soon back on the roller coaster. In January he spent a weekend in Athens, putting together what the IIF called its “maximum” offer, then headed to Zurich for what the group hoped would be a triumphant press conference followed by a victory lap in Davos. Dallara never got to Davos. Instead he headed to Paris to discuss with the IIF’s steering committee a new objection by Luxembourg’s Prime Minister. On Feb. 3 it was back to Athens for yet another final push.

A native of Spartanburg, S.C., Dallara joined the Treasury Dept. in the 1970s and eventually became Assistant Secretary for International Affairs under the first President Bush. He helped put together the Brady bond program, which allowed countries in Latin America to issue dollar-denominated debt in a bid to avoid a sovereign-debt crisis. Dallara also helped negotiate the Plaza Accord, an agreement that led to the devaluation of the dollar in relation to the yen and the deutsche mark. Such experience probably came in handy as he and fellow IIF negotiator Jean Lemierre talked sometimes more than once a day with Greek Prime Minister Lucas Papademos in early February.

For those seeking hints of progress in Dallara’s travels, it may be good news that he has left Athens and is headed to Paris, where the steering committee of the IIF was expected to meet on Feb. 9 for an update on the talks. It may soon be time for that victory lap.

The bottom line: Although a debt deal will pave the way for a second Greek bailout, the banks may have to write off at least 70 percent of the bonds’ value.

Christie is a reporter for Bloomberg News.
Kirchfeld is a reporter for Bloomberg News in Frankfurt.

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