TALKS ON Greece’s second international bailout are into the endgame as officials work to conclude a complex debt restructuring deal this weekend.
The race to complete the deal comes amid tension between the EU authorities and the International Monetary Fund over the best way forward for the country.
IMF mission chief to Athens Poul Thomsen told the daily Kathimerini that there was a limit to what Greek society could endure.
“While Greece certainly will have to continue to reduce its fiscal deficits, we would want to ensure – considering that social tolerance and political support have their limitations – that we strike the right balance between fiscal consolidation and reforms,” Mr Thomsen said.
In Brussels, however, a spokeswoman for the EU Commission said euro zone finance ministers recently reaffirmed their commitment to a speedy reduction in the country’s budget deficit and noted that the commission supported that stance.
As discussions ramp up in Athens, Luxembourg prime minister Jean-Claude Juncker warned yesterday that the steps taken to contain the crisis at an EU summit this week were “largely” insufficient.
EU leaders adopted a new fiscal treaty to toughen their budget rules but Mr Juncker, who is president of the group of euro zone finance ministers, said better economic co-ordination was still required.
Although he described talks between Greece and its creditors on a €100 billion bondholder contribution to the second rescue as “ultra-difficult”, the authorities are working on the basis that agreement will be reached after markets close tonight or during the weekend.
Plans are in train to convene a special meeting of euro zone finance ministers in Brussels next Monday evening with a view to approving the restructuring arrangement.
A one-week debt-swap will be initiated the following Monday, the objective being to have the transfer wrapped up before a scheduled meeting of the ministers on February 20th. The aim is to complete the entire process before big bond redemptions fall due next month.
“An agreement on substantial involvement of the private sector to reduce Greek public debt is a key condition for a second EU financial assistance programme for Greece,” EU economics commissioner Olli Rehn said in The Hague.
“I expect such an agreement between the Greek government and its private creditors by the end of this week.”
Greece’s talks with its creditors have been going on for months and have stalled several times over the size of the actual bondholder contribution.
While a deal is now said to be imminent, the EU authorities are increasingly concerned that it will not go far enough to reduce Greece’s public debt to the target level of 120 per cent of gross domestic product by the deadline of 2020.
This has prompted discussion on an official sector involvement element to the deal.
Attention is focused on the European Central Bank forgoing profits on €55 billion of Greek bonds it acquired below the issue price.
Europe is unhappy with a string of broken promises from Greece. Technocratic premier Lucas Papademos wants his coalition partners to back new cost-cutting measures.
The Bailout Fund Stability Mechanism Treaty signed
The Government and its EU partners have signed the treaty to set up the European Stability Mechanism, the permanent euro zone bailout fund which is expected to come into force this July.
Dublin will be making an upfront €250 million capital contribution to the mechanism, which will be established an international financial institution based in Luxembourg.
Euro zone countries will provide €80 billion in paid-in capital up front, the biggest contributor being Germany.
The fund will have a maximum lending volume of €500 billion initially but EU leaders have pledged to review that next month.
As per the leaders' deal on a separate fiscal treaty to stiffen EU budget rules, any country that fails to ratify the fiscal treaty within 13 months will not be able to draw down aid from the ESM.
The ESM treaty says it and the fiscal treaty – known as the treaty and the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union (TSCG) – are complementary in fostering fiscal responsibility and solidarity.
Arthur Beesley