Euro-area finance chiefs may cut Greece some slack in meetingits bailout targets even as they split on whether the country needsanother debt writedown and Greek politicians squabble over furtherausterity measures.

With Greece facing an unprecedented sixth year of recession,fellow euro-area governments are preparing to allow Prime MinisterAntonis Samaras's government “a somewhat flatter adjustment path”in achieving its deficit-reduction goal, said Thomas Wieser, headof the group that prepares meetings of euro-area financeministers.

The target of a primary surplus of 4.5 percent of gross domesticproduct “should in theory soon be reached, but in view of the slumpin the economy we see that now as being only very, very difficultto achieve,” Wieser said today in an interview with German radiostation 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 inthe euro and avert an exit that former Deutsche Bank ChiefExecutive Officer Josef Ackermann said on Oct. 29 would cost“several hundred billion” euros. Finance ministers are due to holda conference call at 12:30 p.m. Brussels time and may release astatement afterwards.

No extra funds from the member states would be required, since“it can be financed within the existing programs,” Wieser said. Adebt writedown, or haircut, wasn't discussed by deputies yesterday,he said.

Ministers will receive an update on the state of negotiationsbetween the Greek authorities and the so-called troika of theInternational Monetary Fund, the European Central Bank and theEuropean Commission, said Wieser.

“While the negotiations aren't finished, they are quite close tothe end,” he said. “The last steps to agreement are always the mostdifficult.”

European officials are grappling over ways to fill Greece'sfinancing gap two weeks before a decision is due on whether to givethe country a further round of emergency funds. While GermanChancellor Angela Merkel has signaled her desire to stand behindGreece's euro membership, Samaras's coalition is still at odds overthe steps needed to secure more money.

“Eurozone finance ministers hope to finally strike a deal ongiving Greece more time for its adjustment,” said Carsten Brzeski,a senior economist at ING Group in Brussels. “The decisive phasefor Greece has started.”

Cutting Debt

Policy makers are trying to work out a plan that will cut Greekdebt to 120 percent of gross domestic product by 2020 from about144 percent now amid the worst recession in a generation. Failureto hit the debt target could see the IMF withdraw aid, sparkinganother wave of speculation about Greece's future in the euro.

IMF Managing Director Christine Lagarde has suggested thatGreece may need another debt cut after governments and banksearlier this year agreed to the biggest restructuring in history.Merkel's government, the biggest country contributor to Greece'stwo bailouts to date, opposes such a move. At the same time, it hassignaled it's willing to consider an ECB proposal for a buyback ofGreek debt.

“Filling the funding gap for Greece will again require somecreativity,” said Brzeski. “A possible way out, at least in theshort term, could be a combination of several options, such aslowering the interest rates on the first two Greek packages andfront-loading parts of the funding of the second package. Thiscould again kick the Greek can further down the road.”

In Greece, politicians are still haggling over the measuresneeded to clinch a new bailout agreement. Samaras yesterday saidthat negotiations on a new austerity package had been completed,sparking criticism from his coalition partners who said divisionsstill remain.

Democratic Left, which has said it will support the budget,yesterday reiterated opposition to proposed labor reforms. Pasokleader Evangelos Venizelos said talks on the deal will continue upto a Nov. 12 meeting of euro-area finance ministers.

The “hasty” announcement while Pasok and Democratic Left wereholding meetings of their lawmakers is “at the very leastunfortunate,” Venizelos said. “When Mr. Samaras announces thecompletion of negotiations on the measures and the budget heobviously means on the troika level.”

Samaras's government will present the budget to parliamenttoday, though no date has been set for a vote.

For now, Germany and France are signaling that they will workout a plan for Greece. German Finance Minister Wolfgang Schaeublesaid yesterday that the working group laying the groundwork fortoday's call “is making good progress step by step in the difficultquestion of Greece.”

French Finance Minister Pierre Moscovici, speaking at the samepress 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.

Bloomberg News

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