Europe fails to seal Greek debt-cut deal

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BRUSSELS

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.

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