Eurozone chiefs were still struggling early this morning to close a deal for a new Athens bailout as Greek Prime Minister Lucas Papademos sought improved terms on a key write-down of Greece’s debt in a last-minute meeting with banks.
A long period of uncertainty coming to a close today
After months of acrimonious debate, all sides expressed confidence that an agreement would be found to greenlight a €230-billion financial lifeline, in exchange for strict surveillance of the Athens government over coming years.
Greece, Germany, the IMF and the head of the Eurogroup of finance ministers, Jean-Claude Juncker, each said a deal was do-able during closed-door talks centred on avoiding an increased outlay from the public purse.
However, a €5.5-billion gap remained to be filled if Germany and the Netherlands especially are to get the agreement past their national parliaments.
European Union and International Monetary Fund partners have set a target for Greek debt sustainability of 120 per cent of gross domestic product (GDP) by 2020, down from around 160 per cent at present.
The €5.5-billion gap comes about because the latest analysis suggests that, even with a bailout, Greek total debt would only fall to 129 per cent of GDP.
Greek Finance Minister Evangelos Venizelos said on arrival that he was “optimistic” of a deal, signalling “a long period of uncertainty coming to a close today – a period that benefited neither the Greek economy, nor the euro area overall.”
A “confident” Wolfgang Schaeuble of Germany seemed to justify the sense an agreement was in the making, while IMF chief Christine Lagarde also praised Athens’s “great efforts” to overhaul its economy.
But Dutch Finance Minister Jan Kees De Jager demanded the EU and the IMF take “permanent” control of decision-making over revenues and public expenditure in Greece. Mr De Jager said partners committed to providing Greece with money for years to come need “some kind of permanent presence” dictating policy on the ground, saying lenders should be “the boss”.
The Greek rescue is structured as follows:
• A write-down of privately-held government debt worth €100 billion;
• A series of sweeteners for Greek banks, and guarantees in case private creditors do not take up the bond-swap offer to be launched otomorrow in sufficient numbers; and
• Loans eventually adding up to another €130 billion.
Athens faces debt repayments of about €14.5 billion on March 20, otherwise it could be classed as bankrupt.
Full delivery of the rest of the package, as well as IMF assistance, will be contingent on Greece enacting deeply unpopular spending cuts and reforms demanded by its partners.
Belgian Finance Minister Steven Vanackere and others warned that Greece must deliver, “not only today, but in the weeks, months and years to come.”
Eurozone hardliners’ patience with Greece almost snapped over recent weeks with growing suggestions Athens could be cut adrift and that the eurozone would suffer less damage from such an approach than 18 months ago.
Many euro partners see Greece as the victim of decades of chronic financial mismanagement by dynastic political forces.
New bailout likened to the aid equivalent of a hospital drip
Ahead of a general election in April, the new bailout has been likened to the aid equivalent of a hospital drip.
Surveillance of Greece’s day-to-day economic management is critical after the failure of an initial €110-billion EU-IMF rescue approved nearly two years ago.
A small army of EU officials is building up in Athens to make sure Greece delivers on pledges including a 22 per cent reduction in the country’s minimum wage and a 12-per cent cut to pensions of more than €1,300 a month.