Brussels: Euro zone finance ministers and the International Monetary Fund began their third attempt in as many weeks to release emergency aid for Greece on Monday, with policymakers saying a write-down of Greek debt is off the table for now.
Greek Finance Minister Yannis Stournaras voiced confidence the ministers would finally reach a deal after Greece had fulfilled its part of the deal by enacting tough austerity measures and economic reforms.
“I’m certain we will find a mutually beneficial solution today,” he said on arrival for what was set to be another marathon meeting.
Greece, where the euro zone’s debt crisis erupted in late 2009, is the currency area’s most heavily indebted country, despite a big “haircut” this year on privately-held bonds. Its economy has shrunk by nearly 25 per cent in five years.
EU Economic and Monetary Affairs Olli Rehn said it was vital to disburse the next 31 billion euro tranche of aid “to end the uncertainty that is still hanging over Greece.” He urged all sides to “go the last centimetre because we are so close to an agreement”.
Greece had met international lenders’ conditions and “Now it is delivery time for the Eurogroup and the IMF,” Rehn said.
Negotiations have been stalled over how Greece’s debt, forecast to peak at almost 190 per cent of gross domestic product next year, can be cut to a more sustainable 120 per cent by 2020.
Without agreement on how to reduce the debt, the IMF has held up payments to Athens because there is no guarantee of when the need for emergency financing will end.
The key question is: Can Greek debt become sustainable without the euro zone writing off some of the loans to Athens?
IMF Managing Director Christine Lagarde said on arrival that the solution must be “credible for Greece”. The IMF argues that the debt can only be made manageable if euro zone governments forgive some of their loans to Athens, but Germany and its northern European allies have so far rejected any such idea.
Debt Relief “Not On Table”
German Finance Minister Wolfgang Schaeuble told reporters on arrival that a debt cut was legally impossible, not just in Germany but for other euro zone countries, if it was linked to a new guarantee of loans.
“You cannot guarantee something if you’re cutting debt at the same time,” he said. That might not preclude debt relief at a later stage if Greece has completed its adjustment programme and no longer needs new loans.
The German banking association (BDB) said a fresh “haircut” or forced reduction in the value of Greek sovereign debt, must only happen as a last resort.
Two European Central Bank policymakers, Vice-President Vitor Constancio and executive board member Joerg Asmussen, said debt forgiveness was not on the agenda for now.
“It has been clearly stated. It is not on the table. Everything else is just rumours,” Constancio told reporters in Berlin.
Asmussen told Germany’s Bild newspaper the package of measures would include a substantial reduction of interest rates on loans to Greece and a debt buy-back by Greece, funded by loans from a euro zone rescue fund.
So far, the options under consideration include reducing interest on already extended bilateral loans to Greece from the current 150 basis points above financing costs.
How much lower is not yet decided — France and Italy would like to reduce the rate to 30 basis points (bps), while Germany and some other countries insist on a 90 bps margin.
Another option, which could cut Greek debt by almost 17 per cent of GDP, is to defer interest payments on loans to Greece from the EFSF, a temporary bailout fund, by 10 years.
The European Central Bank could forego profits on its Greek bond portfolio, bought at a deep discount, cutting the debt pile by a further 4.6 per cent by 2020, a document prepared for the ministers’ talks last week showed.
Not all euro zone central banks are willing to forego their profits, however, the German Bundesbank among them.
Greece could also buy back its privately-held bonds on the market at a deep discount, with gains from the operation depending on the scope and price.
But the preparatory document from last week said that the 120 per cent target could not be reached in 2020, only two years later, unless ministers accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount.
The latest analysis for the ministers showed the debt could come down to 125 per cent of GDP in 2020, one euro zone official with insight into the talks said.