EU Leaders Face Greek Aid Gap in Brinkmanship With IMF
European governments will try to plug an immediate hole in Greece’s finances and prevent new ones from opening in the latest installment of the debt-crisis brinkmanship rattling the euro economy.
Finance ministers will battle among themselves and with the International Monetary Fund to find 15 billion euros ($19 billion) through 2014 for Greece and seek an elusive formula for putting its debt on a sustainable path.
Today’s crisis meeting in Brussels, the second in eight days, was shadowed by concerns that a two-year fix will leave Greece needing more money and possibly more debt relief to emerge from the spiral of deficits and recession.
“It’s essential now that we take a decision on a set of credible measures to introduce debt sustainability,” European Economic and Monetary Commissioner Olli Rehn told reporters as he entered the meeting. “At the same time, we have to be ready to take further decisions in the light of future developments and of course conditional and dependent of full implementation of reforms of the program by Greece over the coming years.”
Officials said the negotiations, which started at 5 p.m. and may run into the night, won’t make a final decision to release the next 44 billion-euro tranche of aid to Greece, partly because parliaments in Germany, the Netherlands and Finland have yet to weigh in.
“We’ve set out to reach a result, but I can’t promise you,” German Finance Minister Wolfgang Schaeuble said. “There’s still some work to do.”
Schaeuble’s French counterpart, Pierre Moscovici, said ministers must be ready to compromise. “Everyone has to be ready to cross his red lines,” he said. “If everyone puts a little water in his wine, we’ll get there.”
The so-called troika representing creditors also has to certify that Greek Prime Minister Antonis Samaras’s coalition government has delivered economy-boosting steps ranging from improvements in tax collection to the deregulation of closed professions.
Greek 10-year bonds gained for an eighth day amid expectations that creditors will keep money flowing to the government in Athens. The yield on the security maturing in February 2023 fell 12.5 basis points to 17.1 percent.
Recycling European Central Bank profits on Greek bonds, charging Greece lower interest rates and extending repayment deadlines are among the options under consideration for filling the financing gap that opened last week when the ministers pushed back Greece’s deficit-reduction deadlines.
The Nov. 12 decision to grant Greece two extra years, to 2016, to cut its deficit to 2 percent of gross domestic product without offering debt relief stirred tensions with the IMF, provider of about a third of 148.6 billion euros in loans funneled to Greece since 2010.
German Chancellor Angela Merkel, gearing up for a campaign for a third term next year, has ruled out writing off a portion of Greece’s debt. Dutch and Finnish leaders have told their bailout-weary voters the same thing.
“The hardest part is Greek debt sustainability; this will be definitely be the longest discussion today,” Finnish Finance Minister Jutta Urpilainen said. “Only giving additional time won’t suffice. We need other measures. Differences between member countries are rather big.”
IMF Managing Director Christine Lagarde, who began the crisis as French finance minister, found fault last week with the European inability or refusal to bring down Greece’s debt burden.
The trigger was a decision by the ministers to extend by two years, until 2022, a deadline for paring Greece’s debt to 120 percent of GDP. The debt load is set to peak at 190 percent of GDP in 2014, according to the troika, made up of the IMF, ECB and European Commission.
“It’s important to keep the IMF on board,” Luxembourg Finance Minister Luc Frieden said in an interview. “It’s important that besides the know-how, we also have the solidarity and common responsibility of the other big economies in the world.”
Lagarde, who cut short a trip to southeast Asia to return to Brussels, declined to say whether the IMF would budge on the debt target. Arriving for today’s meeting, she pledged “to work very constructively to see if we can find a solution for Greece.”
‘No Fresh Money’
Plugging the financing gap through 2014 is easier than demonstrating to the IMF that Greek debt is on a glidepath to sustainability, officials said. Greece’s loan rates have been lowered and repayment schedules lengthened twice before, an option that is again on the table.
“I have preferences and that means no fresh money because it is difficult to explain to our taxpayers,” Austrian Finance Minister Maria Fekter said. She predicted a “mixed package” that could include lower rates, though countries with higher borrowing costs like Spain and Italy would want compensation for any losses on lending to Greece.
Finance ministers are also considering how to tap profits made by the ECB and national central banks on Greek bonds, drawing on a February commitment to recycle that money back to Greece. The question of how to treat future ECB profits also has to be addressed.
The central bank is sitting on 208.5 billion euros of bonds of debt-hit governments that it started buying in May 2010 in a controversial program that contributed to the resignation of two Germans from its policy council. While the purchases were halted in March, ECB President Mario Draghi has sketched out a new bond-buying program that would only benefit countries that meet strict conditions.
“Greece is in a mess,” James Mirrlees, a Nobel economics laureate, told Bloomberg Television yesterday. Europe won’t solve the problem by “fiddling around with little bits of extra bailout and allowing them to go a bit slower.”
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