Europe fails to seal Greek debt-cut deal
European finance ministers failed to agree on a debt-reduction package for Greece after battling with the International Monetary Fund over how to nurse the recession - wracked country back to fiscal health.
With creditors led by Germany refusing to put up fresh money or offer debt relief, the finance chiefs were unable to scrape together enough funds from other sources to help alleviate Greece’s debt burden, set to hit 190 percent of gross domestic product in 2014.
The euro weakened and stocks declined after more than 11 hours of talks broke up Wednesday in Brussels. The next aid payment to Greece held up since June remained frozen until at least another emer- gency ministers’ meeting Nov. 26.
“We have a series of options on the table on how to close the financing gap,” German Finance Minister Wolfgang Schaeuble told reporters. “We discussed the issue very intensively, but since the questions are so complicated we didn’t come to a final agreement.”
Greece’s fiscal woes have defied three years of rescue efforts, rekindling doubts about Europe’s crisis- containment strategy and maintaining a cloud over the euro, postwar Europe’s signature economic accomplishment.
News of the deadlock — unexpected after a prediction last week of a “definitive decision” by the meeting’s chairman, Luxembourg Prime Minister Jean- Claude Juncker — pushed the euro down 0.3 percent to $1.2783 as of 10:55 a.m. in Brussels and the Euro Stoxx 50 Index fell 0.1 percent. Greek bonds rose for a ninth day, the longest run of gains since the nation’s debt was restructured in March. The yield on Greek 10-year notes fell 20 basis points to 16.90 percent. Finance ministers failed to tackle the dual task of steering an extra 32.6 billion euros ($41.6 billion) to Greece through 2016 while finding a way to tame the resulting increase in Greek debt, already the highest in Europe and deemed “unsustainable” by the IMF.
“Further technical work on some elements of this package” is needed, Juncker said in a statement. He stopped short of predicting a deal at the next meeting, which will come after a European Union budget summit starting tomorrow that risks further inflaming tensions between the richer north and poorer south.
Schaeuble told German lawmakers this morning that the issue of the Greek funding gap was solvable and possible solutions include delaying or reducing interest payments, according to four people who attended the briefing. Greece will receive the next three tranches of aid, which will be eventually be transferred to a special account at the Greek central bank, the people said.
A bloc of top-rated creditors led by Germany continues to resist debt forgiveness, telling their taxpayers that the Athens government will pay back in full the 240 billion euros in loans doled out or promised in two rescue packages since 2010.
German Chancellor Angela Merkel, gearing up to campaign for a third term next year, has ruled out writing off a portion of Greece’s debt. Politicians in the Netherlands and Finland, also with AAA credit ratings, have told their bailout-weary voters the same thing.
Still, the creditors considered a milder form of debt reduction today with options including cuts in interest rates on loans to Greece, a temporary suspension of interest payments and a longer repayment schedule.
Greek Prime Minister Antonis Samaras’s fragile coalition earned the concessions by passing another austerity budget, enacting reforms to make the economy more competitive and recommitting to a privatization program that had made little headway.
After three years of faulting Greece for failing to deliver on economic promises, the ministers commended the government’s “considerable efforts.” While the praise indi- cated that Greece qualifies for the release of a 31.5 billion-euro aid tranche on hold since June, the statement gave no timing for the disbursement.
With unemployment at 25.1 percent, Greece also enjoyed the sympathy of leaders including Merkel, the dominant figure in Europe’s bailout politics, who has gone from threatening to kick the country out of the euro a year ago to praising its turnaround efforts.
The clash with the IMF was triggered by the ministers’ decision last week to grant Greece two extra years, to 2016, to cut the deficit to 2 percent of gross domestic product. While designed to address Greece’s growth problem, that gesture forced the country to take on extra debt to plug the higher deficits.