Merkel still holds out hope for deal on Greek debt despite impasse
German chancellor Angela Merkel held out the prospect for a last-minute deal to settle the Greek debt debacle after a 12-hour negotiation between finance ministers ended without agreement yesterday.
Amid divisions between the International Monetary Fund and its European partners, the ministers scheduled a third round of talks in as many weeks next Monday in Brussels to settle the argument.
“I believe there are chances, one doesn’t know for sure, but there are chances to get a solution on Monday,” Dr Merkel said. “But the longing for one act, one miracle solution, one truth that means all our problems are gone tomorrow . . . this will not be fulfilled.”
With €31 billion in overdue rescue loans for Athens on hold even after the Greek government’s adoption of a new €13.5 billion austerity plan, Greek prime minister Antonis Samaras expressed frustration yesterday at the logjam.
“Greece did what it had committed it would do. Our partners, together with the IMF, also have to do what they have taken on to do,” Mr Samaras said. “Any technical difficulties in finding a technical solution do not justify any negligence or delays.”
At issue is the IMF’s demand for euro zone governments to bear losses on their holdings of Greek bonds to bring the country’s national debt to a “sustainable” level of 120 per cent of economic output. This has been rejected by Germany on the basis it would be illegal. The European lenders want to extend the deadline for the achievement of a debt ratio of 120 per cent of GDP by two years to 2022 but the IMF does not agree.
The European lenders are willing to cut the interest rates Greece pays on loans to help ease a funding gap in excess of €32 billion should they grant it two more years to bring the budget deficit within EU limits.
This, however, is unlikely to be sufficient. The latest idea is to grant additional aid to Athens from the EFSF temporary fund to help the government buy back its own bonds from investors, making use of their low market price to avoid repaying the full amount.
This would essentially reopen the EFSF, from which the euro zone powers were reluctant to draw additional lending after the ESM permanent fund came into force. “We made some good work and we’re closing the gap but we’re not quite there yet, so it’s progress but we have to do a bit more,” said IMF chief Christine Lagarde.
Meanwhile yesterday, Cyprus was downgraded further into junk bond BB-minus by Fitch