Euro Ministers Take Third Swing at Clearing Greek Payment

Antonis Samaras, Greece's prime minister, center, arrives to speak at a news conference following the European Union (EU) leaders summit meeting at the European Council headquarters in Brussels, Belgium, on Friday, Nov. 23, 2012. Photograph: Jock Fistick 

Euro-area finance ministers try for the third time this month to clear an aid payment to Greece and forge a blueprint to keep the country a solvent member of the currency bloc.

Finance chiefs from the 17-member single currency return to Brussels today, less than a week after an all-night meeting failed to yield agreement and days after a European Union summit broke up without a proposed seven-year budget. At stake at the euro meeting is the continuation of a three-year mission to return Greece to financial health.

“It would be irresponsible not to reach an accord given all the efforts that have been made on all sides,” French Finance Minister Pierre Moscovici said late yesterday on BFM television. “I’m not going to guarantee that an accord will be reached, but I think the third time should be the charm.”

Efforts to resolve the European debt crisis have stumbled after the European Central Bank gave leaders more time with its September pledge to purchase sovereign debt. As officials put finishing touches on a bailout for Cyprus, divisions were on display in Spain. Voters in Catalonia took a step toward independence, risking the country’s fragmentation.

Euro-area finance ministers held a conference call Nov. 24 to prepare for the Brussels meeting. A breakthrough hinges on coming up with 10 billion euros ($13 billion) to fill the financing gap that emerged when Greece this month got two more years to meet deficit-reduction targets. Measures on the table include reducing interest rates on rescue loans, arranging a debt buyback with bailout funds and applying central bank profits on Greek bond holdings to the effort. 

Debt Target

The agreement could raise Greece’s debt target to 124 percent of gross domestic product in 2020 from a previous goal of 120 percent, a Greek official said on Nov. 22 in Brussels. Once the deadlock breaks, Greece would get a payout of at least 31 billion euros.

Disagreements over the plan to reduce interest rates have been a key roadblock, since a cut would set the rates below the cost of funding for some of the 17 euro-area countries, the Greek official told reporters.

Greek Prime Minister Antonis Samaras, who has pushed through the reductions in pensions, wages and benefits, said it’s the creditors’ turn to step up. European leaders have lauded Samaras for delivering the measures in the face of public protests. “We have done our part,” he said last week.

The squabbling over Greece’s extra time has also stirred tensions with the International Monetary Fund, which has provided about a third of almost 150 billion euros in loans delivered to Greece since 2010. The IMF has been firmer about holding to the 120 percent target by 2020. 

‘Red Lines’

“Everyone showed up with their ‘red lines’ and nothing got decided,” Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, wrote on Nov. 21 about the last meeting. He attributed the policy lag to the “absence of acute market pressure.”

Greek bonds have rallied on the prospect that a deal will keep funds flowing, with yields on 10-year notes sliding as low as 16.36 percent on Nov. 22, the lowest since Greece’s debt was restructured in March. Spanish 10-year yields also fell last week, sliding to 5.6 percent.

ECB Board Member Joerg Asmussen told Bild newspaper that he “hopes very much” the ministers clinch a deal. In order to close the budget gap, “everybody has to move,” Asmussen told the newspaper in a pre-release of today’s edition. 

Write-Off Talk

Germany, the biggest European economy and linchpin for any deal, rejects a debt write-off, the most extreme step and one suggested by both ECB policy maker Jens Weidmann and the IMF.

German Finance Minister Wolfgang Schaeuble, who discussed the issue with colleagues at a meeting in Paris on Nov. 19, excluded a debt write-off that would cost taxpayers in creditor countries, though the possibility could re-emerge in 2015, Welt am Sonntag newspaper reported, without saying where it obtained the information.

European unity was also tested at last week’s summit, where leaders failed to bridge differences over a spending plan for the years 2014-2020 that would total about 1 percent of EU-wide GDP. Wealthier countries such as Germany, the U.K., Denmark, Sweden and the Netherlands joined forces to scale back what they pay to the EU’s collective pool, whittling down the original proposal of more than 1 trillion euros.

The EU leaders plan another summit early next year.

“Anything short of admitting that our talks have been extraordinarily complex and difficult would not reflect reality,” Jose Barroso, head of the European Commission, told reporters after the two-day meeting.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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