IMF under pressure over Greece

THE IMF was under pressure last night to dilute its demand for a Greek debt cut as euro zone finance ministers pressed to finalise…

THE IMF was under pressure last night to dilute its demand for a Greek debt cut as euro zone finance ministers pressed to finalise the country’s second bailout.

The negotiation continued as the European authorities grappled with a new debt sustainability assessment by the EU-IMF “troika” which suggests Greek national debt will remain well above target even after a €130 billion loan package and a €100 billion debt write-down.

“We will deal today with bringing the decision of a new programme for Greece to an end,” said German minister Wolfgang Schäuble.

Although a succession of other ministers also expressed confidence that a deal was within their grasp, officials said numerous elements of the package remained to be settled.

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The talks were still ongoing at midnight in Brussels and were expected to continue for some hours to come. A diplomatic said that there was a lot more ground to be covered in the early hours but that the aim remained to conclude a deal overnight.

A key question centred on whether the IMF would relent on its demand for the new package to deliver a reduction to 120 per cent of national output in the level of the Greek national debt by 2020.

The IMF has made that a condition of its support for the second bailout the troika’s assessment suggests Greece may still be left with a debt level of 129 per cent of GDP in 2020.

At issue last night was whether IMF chief Christine Lagarde, French finance minister at the outset of the crisis, would accept a deal designed to deliver a debt level “close to” 120 per cent or some other formulation. Ms Largarde gave little away as she arrived in Brussels for the talks, which follow public tensions between the IMF and Europe over the depth of the new austerity plan for Greece.

“Greece has manifestly made very significant strides and now the work has to go on,” she told reporters.

In addition to the ministers’ meeting, parallel discussions were under way between Greece and its the Institute of International Finance banking lobby, which represents the country’s private bondholders.

In question were the terms of a “voluntary” bond-swap to write down at least half the value of €200 billion in privately-held Greek bonds. On a net present value basis the real loss to bondholders may be as high as 70 per cent.

To ensure Greece does not have to fully repay a €14.5 billion due in one month’s time, the authorities will have to make formal legal offer to bondholders within days.

“Everybody is relatively optimistic that we’ll have a deal – which means the likelihood is probably more than 50 per cent – but there’s still an enormous amount of work to be done,” said a senior figure who was observing the proceedings.

Greece faces the prospect that rescue loans will be lodged in an escrow account reserved to service its debts while a team of European inspectors is deployed full-time in Athens to monitor implementation of the rescue.

Also in question was the attitude of national central banks, which have been urged to deliver a contribution to the rescue effort by taking a write-down on their holdings of Greek bonds.

This is separate from another initiative in which the profit the European Central Bank makes on its holdings of Greek bonds would go back to Athens via member states and their national central banks. Minister of State for Finance Brian Hayes represented the Government as Minister for Finance Michael Noonan was unable to attend for family reasons.

Mr Hayes said the negotiation was now into the “endgame”, adding that there had been fault on all sides when asked whether the talks were too slow. “I think now is the time to ultimately get this issue over the line,” he said.

In advance of an EU summit next week, Taoiseach Enda Kenny has co-signed a letter with 11 of his counterparts calling for further measures to boost growth in the European economy.