Europe gives Greece 2 more years to reach deficit targets
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.