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Euro nations split on how to help Greece cut debt
BRUSSELS — European finance ministers appeared no closer Monday to agreeing on whether they were ready to take decisive action to help Greece dig itself out of its mountains of debt, despite a proposal from the country’s international creditors to grant the country extra time to meet its targets.
A draft document obtained by The Associated Press Monday from Greece’s so-called troika of creditors — the European Central Bank, the European Commission and the International Monetary Fund — recommends giving Athens two more years until 2016 to implement the reforms necessary to restart growth and bring their debts down to a sustainable level. Ahead of Monday’s meeting of the 17 eurozone finance ministers in Brussels, Irish Finance Minister Michael Noonan said that the extension would cost between €31 billion and €32 billion ($39.48 billion-$40.75 billion).
The troika has already pledged €240 billion ($305 billion) in bailout loans to keep Greece afloat while Athens implements economic reforms and austerity measures to get its finances in order. The country has received around €150 billion of those loans so far.
Greece is waiting for the next €31.5 billion ($40 billion) installment of its bailout loan before it faces a bond repayment Friday that it may not be able to afford otherwise. It has passed a series of spending cuts and reforms this week to meet the conditions of the loan. But in recent months, it has become clear that country’s bailout program is way off track, and deep disagreements persist among its creditors on how to right it.
The main aim of the bailout program is to get Greece back to a point where it no longer relies on international aid and can raise money on the debt markets. But the Greek government has been asking its creditors for more time to reach that goal— hoping that a slower pace will release the stranglehold the cuts have on the economy.
The country is currently mired in a deep recession heading into its sixth year, with more than a quarter of Greeks unemployed. Without growth, Greece can’t ever hope to collect enough in taxes to put a dent in its debts. In fact, current projections suggest the country has no hope of reaching the program’s goal of bringing its debts down to 120 percent of GDP by 2020 — a level generally considered sustainable.
“The two-year extension of the adjustment period will mitigate the impact on the economy, while securing a sustainable fiscal position,” the draft document stated.
Jean-Claude Juncker, head of the group of finance ministers from the 17 euro countries, said that the troika had prepared a “positive” report assessing Greece’s progress.
But Germany’s finance minister, Wolfgang Schaeuble, said Greece can’t receive the next installment of its bailout loan until the question of the country’s debt sustainability is solved.
“We first have to see if Greece has delivered,” he said, as he headed into the meeting Monday. “I have not seen this.”
The issue of Greece’s debt is a divisive and important one. If Greece’s debts can’t be reduced to a level where the country no longer relies on further international bailouts, then the billions of euros in bailout loans already agreed for Greece will have been wasted. But easing up on the timeline will cost more money, and politicians in other countries are nervous they won’t be able to sell that to voters. Some countries are also irritated that Greece has consistently missed the deadlines set for it.
The draft troika report is short on details, but a eurozone diplomat said that, if the timeline for Greece’s program is extended, the country will need an extra €15 billion through 2014 and another €17.6 billion between 2014 and 2016. Those figures are similar to the total Finance Minister Noonan gave.
Many economists are also suggesting that Greece will never reduce its debts to a manageable level unless its eurozone creditors agree to take losses on some of their loans. Private creditors have already wiped out more than €100 billion of Greek debt.
French Finance Minister Pierre Moscovici said the ministers had to reach some sort of over-arching agreement on how to move forward on Greece.
“I hope tonight we can find a political agreement in order to say we can go on with the Greek program, let’s put the problems behind us and let’s rebuild confidence in the eurozone,” he said.
By Tom Fitton
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