FRANCE HAS backed moves to ease the burden of Greece’s debt, which comes as the IMF threatens not to release the next €3 billion for its troubled bailout.
As the IMF hardens its push for accelerated fiscal reforms from Greece, French president Nicolas Sarkozy opened the door to investor participation in an effort to prop the country up.
Mr Sarkozy’s intervention deepened a rift between EU governments and the European Central Bank (ECB), which opposes any form of Greek debt restructuring.
It came as Greece’s Socialist government failed after five hours of talks yesterday to win opposition support for a new fiscal plan, intensifying pressure on prime minister George Papandreou.
While saying France was opposed to debt restructuring if that meant a European country not repaying its debt, Mr Sarkozy said other options were available.
He was speaking after a private meeting with German chancellor Angela Merkel in Deauville, where they were attending a G8 summit.
“If the question is, can we think about how private investors or private partners can take a share of the burden, then it’s not restructuring at all,” he told reporters. “Then, there are formulas. It is not a problem and we should converge in that direction.”
European diplomats say the IMF has told Greece it is not prepared to release the next round of its rescue loans unless it comes up with radical new proposals to assert control over its public finances.
This is crucial given Greek concerns the country will become insolvent next month if it does not receive an expected €9 billion from Europe and €3 billion from the IMF. The release of this money is contingent on an imminent report from an ongoing “troika” review of the Greek bailout by the IMF, the EU Commission and the European Central Bank (ECB).
While the report is still awaited, most officials expect it will conclude Greece has no prospect of making a return to private debt markets next year. IMF rules bar it from lending to countries which do not have a 12-month refinancing guarantee.
Diplomats say the IMF is threatening to invoke this rule if Athens does not quickly execute a new fiscal plan. However, Mr Papandreou emerged empty-handed from talks yesterday with the New Democracy opposition when its leader Antonis Samaras rejected his latest austerity plan.
The EU authorities want the country’s leaders to achieve a national political consensus on reform efforts as a condition for further aid.
Mr Sarkozy’s remarks were taken as an implicit reference to contentious proposals to seek to relax some of the pressure on Greece by asking its private creditors voluntarily to accept longer maturities on its debt.
Senior European figures describe such proposals as a form of “soft restructuring” or debt “re-profiling”, which would proceed as a last resort in return for swifter fiscal reforms and privatisations by Greece.
The authorities believe huge state support for banks in Greece and other euro zone countries gives them significant scope to persuade bank leaders to co-operate with such an initiative. But the ECB is strenuously opposed to such measures, warning of dire consequences for Greece and the wider euro zone if it fails to meet any of its contracted debt terms.
The ECB believes investors see no distinction between “hard restructuring” – code for full-blown default – and any voluntary initiative for longer debt repayments.
The bank, which is itself a large holder of Greek debt, has threatened to refuse to accept the country’s debt as collateral in its money-market operations should the country default.
