European governments will find a way of tiding Greece past next week’s bill redemption as the pieces of an updated aid package take longer than planned to fall into place, a European official said.
While finance ministers on Nov. 12 are unlikely to sign off on 31.5 billion euros ($40 billion) of fresh loans, the result won’t be an “accidental default” for Greece when 5 billion euros of bills mature on Nov. 16, the official told reporters in Brussels today on condition of anonymity.
Creditor countries will weigh whether Greek legislation passed this week goes far enough in overhauling the economy and showing that Greece, the origin of the three-year-old debt crisis, deserves to continue tapping international aid, the official said.
“We’re not out of the woods yet,” German Finance Minister Wolfgang Schaeuble said yesterday in Hamburg. “I don’t see how we can take the decision already next week.”
Delays reflect tensions within the Greek coalition and between Greece and the “troika” representing creditors. Donor countries such as Germany also need national parliamentary endorsement before giving the green light to the next payments from a total of 240 billion euros pledged to Greece since 2010.
Greece overcame one hurdle yesterday when Prime Minister Antonis Samaras eked out a slim parliamentary majority for a bill on pension, wage and benefit cuts. The next hurdle comes on Nov. 11, when the parliament votes on the 2013 budget.
Samaras has pressed for two extra years, until 2016, for Greece to meet deficit-reduction targets imposed by European governments and the International Monetary Fund. Creditors’ calculations are assuming a two-year extension, the Brussels official said, while declining to say whether it will be approved.
A variety of options are under consideration for plugging the financing hole that an extension would open up, the official said. While engineering a buyback of Greek debt at depressed prices is one of them, it is “technically and financially infinitely more complicated than you would ever imagine,” the official said.
Solutions hinge on when Greece’s debt will become “sustainable,” previously defined as dropping to 120 percent of gross domestic product by 2020. The official today said a decade is now the rough timetable, implying that the sustainability target may be pushed out to 2022 or 2023.
The official declined to say whether the European Central Bank would allow greater Greek treasury bill issuance as a way of financing next week’s expiration.