Eurozone tries again for Greece agreement
Wednesday 21 Nov 2012 11:14 a.m.
By Carlo Piovano and Don Melvin
European Union officials will make a fresh try to reach a political accord on desperately needed bailout loans for Greece - an agreement that eluded them last week.
The Irish finance minister, Michael Noonan, said a main point of contention at the meeting in Brussels among officials of the 17 European Union countries that use the euro is whether to give Greece an extra two years to get to a point where it can raise its own funds - and how to finance that extension.
The finance ministers need to agree on the extension before they can pay Greece the €31.5 billion (US$40.2 billion) rescue loan that has been kept on hold for months. When previously frozen aid is considered along with further aid scheduled to be disbursed later this year, that total could reach €44 billion ($56.15 billion), said a spokesman for Jean-Claude Juncker, who chairs the eurozone finance ministers' meetings.
As he went into Tuesday's meeting, Juncker said Greece deserved the aid.
"It is clear that Greece has delivered but we still have to agree on the details," he said. "I expect the chances are good that we will come to an agreement tonight, agreed by all sides, but I am not completely sure about this."
The finance ministers had hoped to settle on the conditions for the aid last week, but their meeting ended without agreement. That delayed the loan payment, pushing the country closer to bankruptcy and a possible exit from the euro.
Labouring under a mountain of debt, Greece has been relying since 2010 on international bailout loans, under terms supervised by the so-called troika - the International Monetary Fund, the European Central Bank, and the European Commission, which is the 27-country European Union's executive branch. To receive the aid, Greece has had to impose strict austerity and reform measures. Two weeks ago, the coalition government narrowly succeeded in passing a €13.5 billion package of budget cuts, tax increases and reforms in order to secure the latest loan payment.
The main aim of the bailout program is to right the country's economy and get it to a point where it no longer relies on international aid and can independently raise money on the debt markets.
The reform program attached to the bailout was supposed to steadily reduce Greece's debt to 120 percent of its annual gross domestic product - a condition imposed by the IMF, whose consent is needed if the funds are to be released. The deadline for this target was 2020 but it's been clear for months that the country is way off track for achieving that.
Last week's meeting revealed disagreement on whether Greece should be given until 2022 to reach the 120 percent target. The IMF is insisting that Greece stick to the original deadline.
The question of debt sustainability is as important as it is divisive: If Greece's debts can't be reduced to a level where the country can afford to pay them, the billions of euros in bailout loans given to Greece will have been wasted.
Greece, however, was granted one extension at last week's meeting - an extra two years until 2016 to implement its program of austerity reforms and deficit cuts. By giving the government more time, it is hoped the impact on its struggling economy would be lightened. But this extension will also cost more money - another €32 billion through 2016, according to the troika - since the debt will have to be financed over a longer period.
The problem is that many eurozone countries are opposed to putting more money into Greece's aid program.
The eurozone countries could help pay for the extension by lowering the interest rates Greece has to pay for its rescue loans. They have also indicated that they would be willing to hand back to Greece profits they receive on Greek bonds held by the European Central Bank.
That may not be enough, though. Dutch finance minister Jeroen Dijsselbloem warned the extension it could, in the end, cost new taxpayer money: "The chance is very large. I see it as my duty to make sure the damage is as limited as possible."
The eurozone finance ministers will try to hammer out an agreement on the conditions attached to the aid, but they will not be able to give final approval. Parliaments in some of the countries must first vote, after which the ministers will meet again on the issue.