Greece gets IMF nod for €3.2b loan

Washington: Greece won approval from the International Monetary Fund for a €3.2 billion (Dh16.7 billion) payment under a joint loan with the European Union, buying policymakers time to craft a second rescue package and avert the first sovereign default in the euro region.

But the real challenge could still lie ahead, say EU officials, with Eurozone finance ministers tomorrow facing the challenge of rebuilding an eroding consensus on how to bail out Greece again.

"It will be a difficult Eurogroup, because positions are hardening," an EU official said of the meeting on condition of anonymity because of the sensitivity of the bank talks.

After rating agency Standard & Poor's said that even the market-friendly French model for a bond rollover would likely be seen as a "selective default" by Greece, Germany is pushing again for its original plan: a bond swap where, instead of buying new bonds, banks and other private investors would exchange their bonds for ones with longer maturities.

"If this French model — depending on how it is shaped — has this problem (of triggering a default rating) too, then we can go back to the model that we had proposed," German Finance Ministry spokesman Martin Kotthaus said on Friday in Berlin. A bond swap is commonly seen as a more radical option than a rollover, because it would be easier to verify how many investors are actually taking part and thus leave more room for naming and shaming.

"We have to walk a very narrow path between a voluntary contribution, and at the same time a substantial one," Kotthaus said.

The situation in Greece and the currency union's other struggling members — already bailed out Ireland and Portugal as well as Spain and Italy — is also set to overshadow the other main topic at next week's get-together: how to deal with banks that fail stress tests. The results of EU bank stress tests are due on Friday and are seen as an important gauge for the region's credibility, after last year's exercise glossed over massive problems at Irish banks.

Stricter tests

The EU's new banking regulator has stressed that this year's tests are much stricter and insists that states have the necessary backstops in place to deal with the results.

"Before the stress tests are published, the affected states have to be in a position to say ‘this is how we will react,'" said a Eurozone official. That involves boosting safety funds and coming up with models for an orderly restructuring in some cases, the official added.

He was speaking on condition of anonymity because EU finance ministers, who will join their Eurozone colleagues on Tuesday, still had to finalise the decisions on backstops.

However, fears over the potential costs for states to deal with failing lenders was already pressuring bank shares Friday, especially in debt-laden Italy, whose banks have so far weathered the crisis much better than their counterparts in other European countries.