Euro zone ministers set to back €130bn loan to Greece today
GREEK TECHNOCRAT premier Lucas Papademos rushed to Brussels last night for last-ditch talks with senior European officials on his country’s second EU-IMF bailout.
The talks came ahead of a meeting in the city this evening at which euro zone finance ministers are expected to sign off on a €130 billion loan package and a related deal to wipe €100 billion from the Greek national debt.
After weeks of delay, a senior euro zone source said last night that the prospects for the ministers’ meeting were “good”.
The negotiation of the second bailout, which has been going on for seven months, has inflamed tension between Greece and its European sponsors and sparked a new wave of street protests against the austerity drive attached to the aid plan.
“If Greece can implement all the necessary promises and reforms by the end of February, and clears any other open questions, then the second aid package can be approved,” said German finance minister Wolfgang Schäuble in an interview with German paper Der Tagesspiegel.
The rescue agreement, if reached, will see dozens of European inspectors deployed full-time in Athens to oversee the rescue. This reflects EU leaders’ mistrust of Greece’s because of its failure to execute reforms promised in the unsuccessful first bailout.
The slow progress of the talks led senior figures within the triple-A-rated governments of Germany, Finland and the Netherlands to question whether Greece should undergo an uncontrolled debt default instead of the second bailout.
Although there is serious doubt over the viability of the rescue scheme in many EU countries, the default option and Greece’s consequent exit from the single currency appears to have been ruled out for the moment.
“I don’t think there is a majority for another path,” said Austrian minister Maria Fekter when asked on television whether today’s meeting would endorse the deal.
While key elements of the plan remained unclear last night, top officials say today’s meeting is probably the last opportunity to initiate the debt-restructuring deal in time to reduce payment due on a €14.5 billion bond next month.
The biggest uncertainty surrounds the effort to ensure the deal brings Greece’s debt down to 120 per cent of national output by 2020. With the latest estimates by the EU-IMF “troika” suggesting the current arrangements will result in a debt level of 129 per cent of gross domestic product by that time, officials have been seeking to bridge that gap.
The European Central Bank is expected to facilitate the distribution of the profit it makes on Greek bonds back to Athens via national central banks.
This is still unlikely to fully bridge the financing gap and the initiative is said to have met resistance in Germany’s Bundesbank, whose participation is necessary if the effort is to make an appreciable inroad into the Greek debt.
Also in question is whether the rescue loans are deposited in an escrow account reserved for debt repayment, as sought by Germany and France.
Germany pressed for a staggered or phased deal as a means of ensuring Greek compliance with the plan but Mr Schäuble said that would not be constructive.