The eurozone will not authorise more money for Greece on Monday, despite the country approving a tough 2013 budget, because there is still no agreement on how to make its debts sustainable. Finance ministers meeting in Brussels should, however, give Athens two more years to meet its goals in talks about unfreezing lending to Greece.
Loans have been held up after Athens went off-track with promised reforms and budget cuts, largely as a result of holding two elections in the space of three months. The Greek parliament passed an austerity budget for 2013 late on Sunday and a structural reform package last Wednesday, meeting the conditions for the release of the next tranche of 31.5 billion euros of emergency loans from the euro zone.
But a variety of officials have said the money will not be released yet. "I am impressed by Greece's recent performance Greece is on track to meet its commitments step by step," the chairman of euro zone finance ministers, Jean-Claude Juncker, told reporters on arrival for the meeting. "There won't be any definitive decisions today, but I think the general feeling is that we would like the next disbursement to done in the most efficient way possible," he said.
The ministers will examine the commitments Greece has made on overhauling structural problems in its economy and assess whether its programme is getting back on track. Juncker said a report by the EU and IMF into the Greek economy, known as the troika report, had been submitted overnight, but officials said a critical element of it - an evaluation of Greece's debt position - was not yet ready.
The debt analysis looks at how to reduce Greece's debts from a forecast 190 percent next year to around 120 percent by 2020 - a level the IMF has deemed sustainable in the long-run. It remains unclear when the analysis will be finalised. European Central Bank board member Joerg Asmussen told Belgian daily De Tijd on Saturday Greece would fail to meet the 2020 target under current policies, ending up with debt of more than 140 percent of GDP.
International lenders - the International Monetary Fund, the ECB and the European Commission, called the troika - cannot yet agree on a single estimate for Greek debt in 2020 or on the best way to reduce it. Estimates between the institutions on the debt in 2020 differ by 10-20 percentage points, officials say.
Once there is an agreement on the debt analysis, it will be sent to national parliaments to get approval for the disbursement of the next aid tranche - money Athens needs to pay off loans and shore up its banks. "I think it's rather unrealistic to expect a final decision today as in Germany the Bundestag (lower house of parliament) has to agree to it in advance," German government spokeswoman Marianne Kothe said. One thing the lenders do agree on now is that Greece, which will see its sixth year of deep recession in 2013, needs at least two more years to reach a primary budget surplus that would put its debt on a downward path.
The extra time would allow the economy to start growing again, otherwise it would never produce enough for the country to repay its debt. This surplus target was set in March at 4.5 percent of GDP in 2014 and while there is no final decision yet, officials say it is likely to be moved to 2016 because of delays with reforms and a deeper than expected recession. "The troika has been producing all of its reports and fiscal analyses and adjustment paths on the basis of an additional two years to reach a primary surplus of 4.5 percent of GDP," the senior official said.
The extra time would mean the euro zone would have to provide extra financing for Greece, which officials have put at 30 billion euros. This is politically difficult in Germany, the Netherlands and Finland where public opinion is weary of bailouts. The two extra years would also mean that the targeted Greek debt-to-GDP ratio, set by lenders in March at below 120 percent in 2020, would be shifted to 2022, officials said.
Among the new instruments under consideration to reduce Greek debt are the removal of the 150-basis-point interest above financing costs on 53 billion euros of bilateral government loans to Greece, and lengthening the maturity of the loans. Greece may also borrow from the euro zone permanent bailout fund to buy back its privately held debt, of which there is 50-60 billion euros, taking advantage of the deep discount it traded at to save money on redemptions and interest payments.
The IMF has been pushing for governments to write off some of the official loans to Greece, but Germany, the European Commission and other officials have said it is not legally possible. Time pressure for a deal on Greece is growing because Athens has to redeem 5 billion euros worth of treasury bills on November 16 and has been counting on cash from the next euro zone aid tranche to help cover that.
Since the money will not come in time, Greece wants to roll over the bills. "We are very confident the issue will be rolled over without any problem," a senior debt agency official told Reuters. "We have liaised with the ECB regarding the ceiling on the outstanding stock of T-bills and there is no problem."
The senior EU official also said euro zone ministers were aware of the November 16 Greek redemption and that there would be no "accidental" default. Greek Finance Minister Yannis Stournaras said on Friday the country had no reason for worry. "Greece is doing whatever it should be doing, and Europe is doing what it should be doing... and the tranche will (eventually) be released," he said. "On Monday, we are expecting a political statement."
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