Euro-area finance chiefs may cut Greece some slack in meeting its bailout targets even as they split on whether the country needs another debt writedown and Greek politicians squabble over further austerity measures.
With Greece facing an unprecedented sixth year of recession, fellow euro-area governments are preparing to allow Prime Minister Antonis Samaras’s government “a somewhat flatter adjustment path” in achieving its deficit-reduction goal, said Thomas Wieser, head of the group that prepares meetings of euro-area finance ministers.
The target of a primary surplus of 4.5 percent of gross domestic product “should in theory soon be reached, but in view of the slump in the economy we see that now as being only very, very difficult to achieve,” Wieser said today in an interview with German radio station Deutschlandradio Kultur. “We’ve not taken any decisions, but it could be that it’s postponed by one or two years.”
European policy makers are again seeking ways to keep Greece in the euro and avert an exit that former Deutsche Bank Chief Executive Officer Josef Ackermann said on Oct. 29 would cost “several hundred billion” euros. Finance ministers are due to hold a conference call at 12:30 p.m. Brussels time and may release a statement afterwards.
No extra funds from the member states would be required, since “it can be financed within the existing programs,” Wieser said. A debt writedown, or haircut, wasn’t discussed by deputies yesterday, he said.
Ministers will receive an update on the state of negotiations between the Greek authorities and the so-called troika of the International Monetary Fund, the European Central Bank and the European Commission, said Wieser.
“While the negotiations aren’t finished, they are quite close to the end,” he said. “The last steps to agreement are always the most difficult.”
European officials are grappling over ways to fill Greece’s financing gap two weeks before a decision is due on whether to give the country a further round of emergency funds. While German Chancellor Angela Merkel has signaled her desire to stand behind Greece’s euro membership, Samaras’s coalition is still at odds over the steps needed to secure more money.
“Eurozone finance ministers hope to finally strike a deal on giving Greece more time for its adjustment,” said Carsten Brzeski, a senior economist at ING Group in Brussels. “The decisive phase for Greece has started.”
Policy makers are trying to work out a plan that will cut Greek debt to 120 percent of gross domestic product by 2020 from about 144 percent now amid the worst recession in a generation. Failure to hit the debt target could see the IMF withdraw aid, sparking another wave of speculation about Greece’s future in the euro.
IMF Managing Director Christine Lagarde has suggested that Greece may need another debt cut after governments and banks earlier this year agreed to the biggest restructuring in history. Merkel’s government, the biggest country contributor to Greece’s two bailouts to date, opposes such a move. At the same time, it has signaled it’s willing to consider an ECB proposal for a buyback of Greek debt.
“Filling the funding gap for Greece will again require some creativity,” said Brzeski. “A possible way out, at least in the short term, could be a combination of several options, such as lowering the interest rates on the first two Greek packages and front-loading parts of the funding of the second package. This could again kick the Greek can further down the road.”
In Greece, politicians are still haggling over the measures needed to clinch a new bailout agreement. Samaras yesterday said that negotiations on a new austerity package had been completed, sparking criticism from his coalition partners who said divisions still remain.
Democratic Left, which has said it will support the budget, yesterday reiterated opposition to proposed labor reforms. Pasok leader Evangelos Venizelos said talks on the deal will continue up to a Nov. 12 meeting of euro-area finance ministers.
The “hasty” announcement while Pasok and Democratic Left were holding meetings of their lawmakers is “at the very least unfortunate,” Venizelos said. “When Mr. Samaras announces the completion of negotiations on the measures and the budget he obviously means on the troika level.”
Samaras’s government will present the budget to parliament today, though no date has been set for a vote.
For now, Germany and France are signaling that they will work out a plan for Greece. German Finance Minister Wolfgang Schaeuble said yesterday that the working group laying the groundwork for today’s call “is making good progress step by step in the difficult question of Greece.”
French Finance Minister Pierre Moscovici, speaking at the same press conference, said that policy makers are trying to find a “comprehensive solution during the month of November.”
“And we will marshal all of our forces for that,” he said.