Europe gives Greece 2 more years to reach deficit tar­gets

The Pak Banker - - Front Page -

FRANKFURT

Euro-area fi­nance min­is­ters gave Greece two ex­tra years to wres­tle down its bud­get deficit, pledg­ing to plug the re­sult­ing fi­nanc­ing gaps in or­der to keep the coun­try in the sin­gle cur­rency and pre­vent a re­newed flareup of the debt cri­sis.

Euro-area fi­nance min­is­ters gave Greece two ex­tra years to wres­tle down its bud­get deficit, pledg­ing to plug the re­sult­ing fi­nanc­ing gaps in or­der to keep the coun­try in the sin­gle cur­rency and pre­vent a re­newed flareup of the debt cri­sis.

Fi­nance min­is­ters granted Greece un­til 2016 to cut the deficit to 2 per- cent of gross do­mes­tic prod­uct. They put off un­til Nov. 20 a de­ci­sion on how to cover ad­di­tional Greek needs of as much as 32.6 bil­lion eu­ros ($41 bil­lion) and left un­clear whether the In­ter­na­tional Mone­tary Fund will continue to con­trib­ute. In the lat­est com­pro­mise in three years of cri­sis fight­ing, cred­i­tors led by Ger­many opted to keep money flow­ing to Greece in­stead of risk­ing a de­fault that could lead to the na­tion’s exit from the euro and stir more tur­moil for coun­tries left in it.

“Greece has done a big part of what it was sup­posed to do, adopted an am­bi­tious re­form pro­gram and a bud­get for 2013 that’s im­pres­sive,” Lux­em­bourg Prime Min­is­ter JeanClaude Juncker told re­porters in Brussels late yes­ter­day af­ter chair­ing the min­is­ters’ meet­ing. He said “a cer­tain num­ber of av­enues” ex­cept the write­down of of­fi­cial loans are be­ing looked at for fill­ing the fund­ing gap.

The euro slipped to a twom­onth low against the U.S. dol­lar, drop­ping 0.2 per­cent to $1.2681 at 9 a.m. Brussels time. Euro­pean stocks fell for a fifth day, with the Stoxx Europe 600 In­dex down 0.4 per­cent at 268.45, the long­est los­ing streak since May.

Left unan­swered was how the cred­i­tor gov­ern­ments will keep Greece afloat with­out putting up more money them­selves, a ques­tion that may dog Ger­man Chan­cel­lor An­gela Merkel dur­ing her cam­paign for re­elec­tion in late 2013. The role of the IMF, provider of about a third of 148.6 bil­lion eu­ros in loans fun­nelled to Greece since 2010, also went un­set­tled.

IMF Manag­ing Di­rec­tor Chris­tine La­garde took is­sue with a de­ci­sion by the euro chiefs to post­pone the goal of get­ting Greece’s debt down to a “sus­tain­able” level of 120 per­cent of GDP by two years, un­til 2022.

“Debt sus­tain­abil­ity of Greece has to be mea­sured in 2020,” La­garde said. “We clearly have dif- fer­ent views. What mat­ters at the end of the day is the sus­tain­abil­ity of the Greek debt.”

The coun­try’s re­ces­sion-hit and debt-en­cum­bered econ­omy re­turned to the spot­light just as con­cerns mount over Spain and Cyprus and at a time when cri­sis man­age­ment is clouded by fore­casts that the 17na­tion cur­rency bloc’s econ­omy will vir­tu­ally grind to a halt next year.

Greece’s fi­nanc­ing and path to lower debt are “par­tic­u­larly thorny ques­tions,” said James Nixon, chief Euro­pean econ­o­mist at So­ci­ete Gen­erale SA in Lon­don. “Given the po­lit­i­cal re­luc­tance to grant Greece any more lee­way, a res­o­lu­tion to these ques­tions still looks chal­leng­ing.”

Juncker called the Nov. 20 spe­cial meet­ing to make a “def­i­nite de­ci­sion” on re­leas­ing the next aid tranche, worth 31.5 bil­lion eu­ros. He said the min­is­ters might have to meet again, pos­si­bly by tele­con­fer­ence, by the end of Novem­ber to for­mally sign off on the updated res­cue pack­age.

Eco­nom­i­cally and po­lit­i­cally, the Euro­pean com­mit­ment marked a tri­umph for Greek Prime Min­is­ter An­to­nis Sa­ma­ras, who in power has whipped through the same bud­get­cut­ting poli­cies that he was against while in op­po­si­tion in or­der to keep Greece in the euro.

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