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Euro Finance Ministers Struggle to Reach Accord on Greece Euro Finance Ministers Struggle to Reach Accord on Greece
(about 4 hours later)
BRUSSELS — Finance ministers from the euro area met on Monday for the third week in a row to bridge differences over bailouts for Greece that have bitterly divided creditor nations like Germany and the International Monetary Fund. BRUSSELS — Finance ministers from the euro area met on Monday for the third time in three weeks, seeking to bridge differences over bailouts for Greece that have bitterly divided creditor countries like Germany and the International Monetary Fund.
Ministers said ahead of the meeting that they had made strides to reaching a joint position during a teleconference on Saturday. “All the parameters of the solution are on the table,” the French finance minister, Pierre Moscovici, said on arriving at the meeting. “We are facing our responsibilities.” The haggling continues against the background of a financial catastrophe unfolding in Greece, where the economy has shrunk by about one-fifth in three years and unemployment is hovering at around 25 percent. The unrelenting gloom means suffering for the Greek public and also makes it increasingly improbable that the country can pay back its debts in full.
But diplomats in Brussels said they expected the meeting to be long and stormy — like a similar gathering last week — amid a continuing refusal by major creditors like Germany to forgive Greece some of its debt. Ministers said ahead of the meeting that they had made strides in a teleconference on Saturday toward reaching a joint position. “All the parameters of the solution are on the table,” the French finance minister, Pierre Moscovici, said on arriving at the meeting.
The seemingly endless round of meetings over Greece is a sign that after nearly three years of crises, the political masters overseeing the bloc’s beleaguered single currency are still trying to contain contagion in the euro zone that began with a huge hole in Greek accounts, even as that country’s debt prospects continue to worsen. But diplomats in Brussels said they expected the meeting to be long and stormy and run late into the night — as did a similar gathering last week — as the parties try to find alternative ways of giving Greece relief in light of opposition by major creditors like Germany and the Netherlands to forgiving some Greek debt.
Reaching an agreement on Monday “is important for Greece, important for Europe, and I want to encourage all the euro area member states and the I.M.F. to go the last mile in order to find an agreement, in fact go the last centimeter,” Olli Rehn, the E.U. commissioner for economic and monetary affairs, urged ahead of the meeting. To reach a deal, the I.M.F. may also have to compromise, loosening its budgetary expectations for Greece and accepting that the country will not be able to hit a target of reducing debt to 120 percent of gross domestic product by the end of the decade.
For Greece, the immediate goal is unlocking an installment of loans worth 31.5 billion euros, or $40.2 billion, from an international bailout program. If ministers reach a deal, Greece is likely to get a larger amount of about 44 billion euros because two additional installments are due by the end of the year under the program. The seemingly endless round of meetings over Greece is a sign that after nearly three years of crises, the politicians are still trying to contain contagion in the euro zone, which began with a huge hole in Greek accounts, even as that country’s debt prospects continue to worsen.
In June, creditors froze their aid from its current program, worth 130 billion euros, after determining that Greece was failing to meet the conditions of that bailout, its second. For Greece, the immediate goal is unlocking a loan installment worth €31.5 billion, or $40.8 billion, from an international bailout program.
“Greece has fully delivered its part of the agreement, so we expect our partners to deliver their part too,” Yannis Stournaras, the Greek finance minister, insisted Monday, ahead of the meeting. If ministers reach a deal, Greece is likely to get a larger amount of about €44 billion because two additional installments are due by the end of the year under the program.
The new complication that has led to further delays and acrimony among lenders — as well as to the flurry of meetings — are competing views over whether Greece will ever be able to pay back its loans. In June, creditors froze aid from the current program, worth €130 billion, after determining that Greece was failing to meet the conditions of that bailout, its second.
Since June, the Greek economy has worsened, and social problems there have become more acute as employment has climbed to around 25 percent. Those factors led Greece’s lenders to agree that the government in Athens will need two years longer than previously agreed, or until 2016, to meet its budget targets. “Greece has fully delivered its part of the agreement, so we expect our partners to deliver their part too,” Yannis Stournaras, the Greek finance minister, said Monday ahead of the meeting.
But that concession will cost more money because of a range of factors including revenues from privatizations that will not be as large as expected. The cost could come to nearly 33 billion euros on top of existing bailouts to help Greece reach a primary budget surplus, which excludes debt repayments. The complication that has led to further delays and acrimony among lenders — as well as to the flurry of meetings — are conflicting views about how quickly Greece can grow its economy, lure investors, pay down its towering debt and return to the markets to borrow money once aid programs expire later this decade.
The prospect of paying more to Greece has perturbed a number of lenders, particularly Germany, where transferring more wealth to poorer-performing economies in Southern Europe is politically toxic as Chancellor Angela Merkel gears up for a reelection fight next year. Since June, the Greek economy has worsened and social problems in the country have become more acute as employment has climbed. Those factors have already led Greece’s lenders to agree that the government in Athens will need two years longer than previously agreed, or until 2016, to meet its budget targets.
Last week, ministers considered options like lowering interest rates on Greek debt, lengthening the deadlines for debt repayments, allowing Greece to buy back its bonds at a steep discount and asking the European Central Bank to return profits made on Greek bonds. But that concession will cost more money because of a range of factors including revenues from privatizations that will not be as large as expected. The cost could come to nearly €33 billion on top of existing bailouts to help Greece reach a primary budget surplus, which excludes debt repayments.
Many analysts regard those measures as necessary but insufficient to remedy Greece’s problems. They say that Germany and other reluctant creditors like Finland and the Netherlands will have to take politically unpalatable losses, or haircuts, on their holdings of Greek debt in order to keep the country in the euro area, even if they are able to agree on other measures to reduce the size of the state deficit and reform the economy. The prospect of paying more to Greece has perturbed a number of lenders, particularly Germany, where transferring more wealth to the poorer-performing economies of Southern Europe is politically toxic, particularly as Chancellor Angela Merkel gears up for a re-election fight next year.
Rather than being willing to write down their countries’ Greek holdings, ministers on Monday were instead discussing other options of making Greece’s debt more manageable — like lowering interest rates, lengthening the deadlines for debt repayments, allowing the country to buy back its bonds at a steep discount and asking national governments to return profits made on bonds held by the European Central Bank.
Many analysts regard those measures as necessary but insufficient to remedy Greece’s problems. They say that Germany and other reluctant creditors will have to take politically unpalatable losses, or haircuts, on their holdings of Greek debt to keep the country in the euro area, even if they are able to agree on other measures to reduce the size of the country’s deficit and reform the economy.
The result is a standoff, with Germany trying to keep the bill for Greece as low as possible at least until after the German elections in 2013.The result is a standoff, with Germany trying to keep the bill for Greece as low as possible at least until after the German elections in 2013.
Those concerns were on display over the weekend. Jörg Asmussen, a member of the European Central Bank’s executive board, told the German newspaper Bild that a write-down of Greek debt should not be part of the deal, echoing repeated statements from the German finance minister, Wolfgang Schäuble, who said it would be illegal. Those concerns were on display over the weekend. Jörg Asmussen, a member of the E.C.B.’s Executive Board, told the German newspaper Bild that a write-down of Greek debt should not be part of the deal, echoing repeated statements from the German finance minister, Wolfgang Schäuble, who said it would be illegal.
“That’s not on the agenda at the moment,” said Maria Fekter, the Austrian finance minister, arriving at the meeting on Monday, referring to a write-down of Greek debt by governments. “A debt cut for the public bodies, and in fact the taxpayers, was not wanted by any country,” she told reporters. Maria Fekter, the Austrian finance minister, seemed to agree, saying Monday, “That’s not on the agenda at the moment.”
On the other side is the International Monetary Fund, which insists that fresh money, or even a write-down, will be needed to put Greece on a pathway so its debt is manageable by the end of the decade. By its own rules, the I.M.F. can lend money only if the debt is “sustainable” or can be paid back by a recipient nation, like Greece. “A debt cut for the public bodies, and in fact the taxpayers, was not wanted by any country,” she said.
Christine Lagarde, the managing director of the I.M.F., has insisted that Greece’s debt reach 120 percent of gross domestic product by 2020. But that target has steadily become considered unfeasible. On the other side is the I.M.F., which insists that fresh money, or even a write-down, will be needed to put Greece on a pathway to manageable debt by the end of the decade. By its own rules, the I.M.F. can lend money only if the debt is “sustainable” or can be paid back by a recipient country, like Greece.
Greek debt is now estimated at 175 percent of G.D.P., and its economy could shrink again next year, pushing that figure to 190 percent. Greek debt could be expected to remain at highly elevated levels in the early years of next decade, according to figures seen Monday by the International Herald Tribune. On Monday, the Fund was pressing ministers to agree that Greece’s debt should immediately be cut by 20 percent of G.D.P. through methods like lowering interest rates and extending maturities on loans, and to pledge further reductions in future, with the aim of reaching sustainable levels.
Those figures — distributed to ministers last week by Greece’s so-called troika of lenders, the European Commission, the European Central Bank and the I.M.F. — estimated Greek debt at 144 percent of G.D.P. in 2020, 138 percent in 2021 and 133 percent in 2022 unless further far-reaching measures are taken by Greece, private creditors and by creditor nations. Christine Lagarde, the managing director of the I.M.F., has insisted that Greece pare its debt to 120 percent of gross domestic product by 2020. But that target has steadily become considered unfeasible.
Arriving at the meeting in Brussels on Monday, Ms. Lagarde pledged “to work towards a solution that is credible for Greece” and added “we are going to work very intensely on that.” Greek debt is now estimated at 175 percent of G.D.P., and its economy could shrink again, pushing that figure to 190 percent next year, and even up to 200 percent by 2014, according to some E.U. officials.
That means the I.M.F. will almost certainly have to make concessions to help keep Greece afloat by loosening its debt target, perhaps to around 124 percent by the end of the decade.
Arriving at the meeting in Brussels on Monday, Ms. Lagarde pledged “to work towards a solution that is credible for Greece,” and added, “We are going to work very intensely on that.”