EU, IMF clash over Greece reignites debt crisis fears

Πηγή: Reuters
By Jan Strupczewski and Annika Breidthardt
Nov 13 2012


* Euro zone, IMF clash over debt/GDP target times

* Euro zone finance ministers to meet again next week

* Euro slides, safe haven German debt rises

BRUSSELS - A clash among Greece's international lenders over how long to give the stricken country to get its debts down to a sustainable level reignited fears on Tuesday that the euro zone debt crisis could flare up anew.

Euro zone finance ministers suggested on Monday that Greece should be given until 2022 to lower its debt/GDP ratio to 120 percent but International Monetary Fund chief Christine Lagarde insisted the existing target of 2020 should remain.

"We clearly have different views. What matters at the end of the day is the sustainability of Greek debt so that country can be back on its feet," Lagarde said in an unusually public airing of disagreement.

Behind her sharp exchange with Eurogroup chairman Jean-Claude Juncker lies a rift over whether euro zone governments need to write off some of Greece's debt to make it manageable. IMF officials have pressed for such a "haircut" while Germany, the biggest contributor to euro zone bailout funds, has vehemently rejected it as illegal.

Chancellor Angela Merkel has signalled she wants to keep Greece in the euro zone but is determined to avoid losses for German taxpayers before a general election in September 2013.

With so much stake, diplomats remain confident that a deal will be done to release a 31.5 billion euros tranche of bailout money which Athens urgently requires to avert bankruptcy.

But it is a way off yet.

Financial markets took a dim view of the failure to agree. The euro dipped to a two-month low against the dollar and safe-haven German Bund futures rose to two-month highs.

"Few people would think that the euro zone will desert Greece. Still, the market will be frustrated by lack of a clear picture. I expect the euro to keep falling gradually," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.

Juncker, who heads the 17-nation group of euro zone finance ministers, said a further Eurogroup meeting would take place on Nov. 20 and officials said more negotiations could be required the week after that to nail down a new deal.

The delay leaves Athens scrambling to meet a 5 billion euro bond repayment deadline on Friday, but EU officials were confident that it would not default.

With Greece's overall debt pile set to hit 190 percent of GDP next year, the IMF has set 120 percent as the target, saying that anything much above that is not sustainable given Greece's low growth prospects and high external borrowing requirements.

"All avenues in order to reduce debt on Greece are being explored and will continue to be explored in the coming days," Lagarde said.

NUMBERS GAME

If the IMF, which is concerned about its own integrity, were to walk away from the Greek bailout, the euro zone would have to contribute extra funds, and its reputation in financial markets could be severely damaged.

The euro zone ministers did agree on Monday to give Greece two more years to make the spending cuts demanded of it but by doing so they face an extra funding bill of around 33 billion euros, according to a document prepared for the meeting.

Discussion on how to close that gap will be high on the ministers' agenda when they next meet.

A target was set in March for Greece to achieve a primary surplus of 4.5 percent of GDP in 2014. That will now be moved to 2016 giving Athens some breathing space to temper a deep recession that is to all intents and purposes a depression.

Despite Greece approving a tough 2013 budget last week, which it hoped would meet conditions for the release of the next tranche of emergency loans under its second bailout programme, Lagarde said more work was needed to cement the budget measures.

"That clearly needs to be reviewed a little bit, to make sure that all prior actions contained in that budget law are actually taken," she said. "There will be a few, only a few additional prior actions to be verified in the coming days."

Loans have been held up since Athens, which has received two bailout packages from the euro zone and IMF, went off-track with promised reforms and budget cuts, partly as a result of holding two elections in the space of three months earlier this year.

Until the bailout money flows, Greece will issue more short-term paper to keep itself afloat. Athens will sell one- and three-month T-bills later on Tuesday to refinance the 5 billion euro issue maturing on Nov. 16. Its debt agency expressed confidence the issue will be fully funded.

Three officials told Reuters that the troika had concluded that Greece's debt burden will fall only to 144 percent of gross domestic product in 2020 and roughly 10 percentage points lower two years later if current policies do not change.

To get the higher figure down to 120 percent of GDP requires lopping the best part of 50 billion euros of Greece's debt pile.

Among the new instruments under consideration to reduce Greek debt are the removal of the 150-basis-point interest above financing costs on 53 billion euros of bilateral government loans to Greece, and lengthening the maturity of the loans.

Greece may also borrow from the euro zone bailout fund to buy back its privately held debt, of which there is 50-60 billion euros, taking advantage of the deep discount it trades at to save money on redemptions and interest payments.

IMF: "Greece ιs out of track"

According to ERT news IMF’s projections for Greece are black: “deficit for 2012: 7% from 6.8% predicted in April and 2013: 2.7%, the debt will climb to 162.9% of GDP in 2012 and will continue upward and 2013, when it reaches 171% while the primary budget deficit this year will reach 4 billion instead of the 2 billion euro is the initial prediction of the memorandum".

The report highlights the need to take immediate steps to correct the specific financial discrepancies and to address the risk of reform fatigue: "The situation remains fluid in Greece. The recession and disparities in the implementation of reforms have been charged to revenue and lead to failures. If there is no change in policy since the primary deficit will move between 1.5% -2% of GDP compared to the estimate of 1% of GDP had been made in connection with the financing of Greece from the fund”.

Angela Merkel puts ice in any discussion about lengthening the program reiterating that nothing can be done until it receives at the hands of the troika's report.

Rendezvous in September for any discussion of elongation gives the president of the Eurogroup Jean-Claude Juncker: "Any extension of the program will mean additional funding for Greece. From this arise two questions. First, the Europeans are willing to pay the additional amounts; Secondly, will remain in the IMF program; "

Juncker claims giving Greece more time will cost more

Πηγή: AGI.it
July 14 2012

Berlin - Greece keeping the Euro will cost more money to Eurogroup countries if it is given more time to pass the reforms.

EuroGroup president Jean Claude Juncker said so in an interview with German weekly 'Spiegel', when asked whether it would be best for Greece to quit the Euro.

"It is a fact - Jucker said - that the Greek government has not enforced the programme as we had agreed. It is just as clear that giving Greece more time to reach the established targets will cost more money".

Update: Euro zone loses patience with Greece, says no rescue without reforms

Πηγή: yahoonews
By Reuters
Feb 5 2012

BRUSSELS - Euro zone finance ministers told Greece on Saturday it could not go ahead with an agreed deal to restructure privately-held debt until it guaranteed it would implement reforms needed to secure a second financing package from the euro zone and the IMF.

Euro zone ministers had hoped to meet on Monday to finalise the second Greek bailout, which has to be in place by mid-March if Athens is to avoid a chaotic default. But the meeting was postponed because of Greek reluctance to commit to reforms.

Instead, the ministers held a conference call on Saturday to take stock of progress on the second financing package, which euro zone leaders set at 130 billion euros back in October.

"There was a very clear message that was conveyed from all participants of the teleconference ... to the Greeks that enough is enough," one euro zone official said. "There is a great sense of frustration that they are dragging their feet.

"They should get their act together and start talking honestly, decisively and speedily with the Troika on the aspects of the programme that remain to be finalised - on fiscal and labour market reforms," the official said.

The Troika are the representatives of the European Commission, the European Central Bank and the International Monetary Fund, who have prepared a Greek debt sustainability analysis on which the second financing programme will be based.

"The main issue is the lack of reform, or prior action, in Greece," a second euro zone official said.

Euro zone ministers were also dissatisfied with Greek Finance Minister Evangelos Venizelos because they believed the minister was paying more attention to his position within his party ahead of the April elections, than to talks about reforms.

"There is a great sense of frustration with Minister Venizelos, who is very hard to get hold of because he is very busy campaigning for the leadership of (the Greek party) PASOK, so he is not available to meet with Troika members," the first official said.

"He is preparing his own political future, rather than the future of his country. People are seriously disgruntled about that and have conveyed this very clearly to him this afternoon," the official said.

"There is an increasing sense of frustration that why should we honour our part of the bargain, which we have in the past, while Greece does not seem to care that much, and has not delivered their part of the bargain," the official said.

ATHENS ADMITS TO TOUGH TALKS

In Athens, Venizelos admitted to a growing sense of impatience with the Greeks.

"There is great impatience and great pressure not only from the three institutions that make up the troika but also from euro zone member states," Venizelos said after what he called a "very difficult" conference call with euro zone counterparts.

"The moment is very crucial. Everything should be concluded by tomorrow night."

Jean-Claude Juncker, who chairs the Eurogroup of euro zone finance ministers, voiced the possibility of default.

"If we were to establish that everything has gone wrong in Greece, there would be no new programme, and that would mean that in March they have to declare bankruptcy," he said in advance copy of comments to news weekly Der Spiegel.

Greece has secured a debt restructuring deal with private creditors to halve the value of Greek debt in nominal terms and in exchange receive new, 30 year bonds with an average coupon below 4 percent, officials said.

The restructuring is to help make Greek debt sustainable by cutting it to 120 percent of GDP in 2020 from 160 percent now.

But euro zone governments will only agree to bolster the debt restructuring, called private sector involvement (PSI), with 30 billion euros and further finance the Greek government through 2014 if Athens presses on with lagging reforms.

"The message to Greece now is very clear. The PSI as it stands now is broadly OK but we will not allow you to go ahead with the PSI unless we have guarantees that the rest of the reform to make the whole situation sustainable in the long run will be delivered," the first official said.

"We don't want to give them the PSI, because once we do, we surrender our leverage to obtain any more concrete commitments in terms of policy," the official said. "Before we go ahead with the PSI ... we want to have assurances that Greece is actually capable of implementing the second programme."

Debt restructuring is likely to hit Greek banks harder than others, because they hold a lot of Greek government bonds.

Some EU officials said on Friday that euro zone governments may now have to contribute closer to 145 billion euros than the originally envisaged 130 billion to the second financing package to help recapitalise Greek banks after the bond swap.

But there is strong resistance to that idea from several countries, including paymaster Germany.

"It is highly unlikely that the overall envelope will increase," the second official said.

"In some capitals there is absolutely no appetite whatsoever to reopen the size of the financing package," the first official said.

WHO PAYS?

Investors and some EU officials have suggested that any additional money needed to make Greek debt sustainable could come from the ECB, which holds a portfolio of around 40-50 billion euros worth of Greek paper.

The issue was not discussed at the Saturday call, however.

"This is off the table now. Everybody is saying now that before we can start discussing what the public sector can do, should do or may do, let's talk to the Greeks about what they are prepared to do," the first official said.

"If the Greeks don't start delivering, the question of Official Sector Involvement (OSI) is superfluous."

International lenders to Greece would like to see a lower minimum wage, the removal of the 13th and 14th month "bonus" salary and the liberalisation of labour markets - issues that are politically difficult for Greek parties before the April elections.

"We hope that over the next 12-24-48 hours they will get their act together and ... discuss these matters very urgently with the Troika," the first official said.

Euro zone officials said that Greece, betting that the euro zone would not allow a disorderly default because of the possible repercussions across the 17-country single currency bloc, was playing a dangerous game.

"They think, that we think that the unthinkable cannot be thought. But they better think again," the first official said.

The euro zone expects Greek politicians to come up with a consensus on reforms by Monday, but a letter committing to reforms from political parties may not be enough at this stage, the official said.

"We don't care so much about signed letters by now, we want a clear timetable for legislative action, we would expect them to put it in legislation and pass it possibly before the end of February or in early March - that is the best guarantee - better than any signature," the first official said.

Editor's note: According to the Greek newspaper "Proto Thema" :

"Unrealistic featured eurogroup chief and prime minister of the Grand Duchy of Luxembourg today's Reuters report citing the unnamed sources that the top of theeurogroup, argued that the Finance Minister Mr. Evangelos Venizelos deals more with the claim of leadership of PASOK despite negotiations with the troika.
The announcement from the press office of the Minister of Finance states inter alia that Mr.Venizelos was contacted by Jean-Claude Juncker, who asked him to state clearly that thepublication of Reuters has nothing to do with reality.

"This anonymous publication seems ridiculous, if not suspect anyone with a basic knowledge of the daily program of the Minister of Finance and his team, who make avaliant effort in 24 hours to reach an agreement with the troika and the IIF» answers thepress office of the Ministry of Finance.