UPDATE 1-Greece’s lenders fail again to clinch debt deal

by on November 21, 2012 10:46 am BST

Wed Nov 21, 2012 5:46am EST

* Juncker says no deal yet, further meeting next Monday

* Greece can’t hit 2020 debt/GDP target without

* Germany’s Schaeuble tells lawmakers key issues unresolved

* Euro zone examining Greek debt buy-back of up to 40 bln

By Andreas Rinke and Maria Paravantes

BERLIN/ATHENS, Nov 21 (Reuters) – International lenders
failed for the second week to reach a deal to release emergency
aid for Greece and will try again next Monday, but Germany
signalled that major divisions remain.

Euro zone finance ministers, the International Monetary Fund
and the European Central Bank were unable to agree in 12 hours
of overnight talks in Brussels on how to make the country’s debt
sustainable. They want a solution before paying the next
urgently needed loan tranche to keep Greece afloat.

Several European officials played down the delay, saying the
disagreements were technical and a deal would be reached when
they meet again on Nov. 26.

But German Finance Minister Wolfgang Schaeuble told
lawmakers at a closed-door meeting in Berlin that the lenders
were split over several key issues including how to define debt
sustainability and fill a hole in Greek finances.

“He sees the extension of the debt sustainability goal as
one of the main bones of contention. The other is how to cover
the Greek financing gap of 14 billion euros through 2014,” said
one lawmaker who attended Wednesday’s meeting of Chancellor
Angela Merkel’s centre-right Christian Democrats in parliament.

Merkel herself told the lawmakers the gap could be plugged
by lowering interest rates on loans to Greece and increasing
guarantees provided to the euro zone’s temporary EFSF bailout
fund, in which Germany would take its share, a participant said.

Greece needs the next 31 billion euro aid tranche to keep
servicing its debt and avoid bankruptcy. Its next major
repayment is in mid-December.

Athens says it has carried out the tough reforms required in
the bailout programme but needs more time to reach fiscal
targets agreed with its lenders because its economy has
continued to shrink.

European governments want to give Greece an extra two years,
until 2022, to cut its debt to a sustainable level but the IMF
does not agree. The Europeans, led by Germany, are refusing to
write off any loans. Both options would make it easier for
Greece to meet the targets in the bailout programme.

French Finance Minister Pierre Moscovici said agreement was
close, echoing overnight comments from Eurogroup chairman
Jean-Claude Juncker, who said talks were stuck on

“We are a whisker away from a deal. I am very confident we
will get there on Monday,” Moscovici told Europe 1 radio.

Greece is angry about the repeated delays in releasing the
aid and says it has done what is necessary.

“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,” Prime Minister Antonis Samaras said in a statement.

“Any technical difficulties in finding a technical solution
do not justify any negligence or delays.”

Samaras will meet Juncker in Brussels on Thursday and has
cancelled a trip to Qatar next week to monitor the talks, a
government spokesman said.

Investors were disappointed with the news. Greek banking
stocks fell nearly 6 percent in morning trade. Most of Greece’s
next aid instalment has been earmarked to shore up the country’s
tottering banks.

The euro, European shares and the prices of
higher-yielding euro zone debt lost some ground but later
recovered some of the losses.


A document prepared for the meeting and seen by Reuters
showed that Greece’s debt cannot be cut from 170 percent of GDP
to 120 percent, the level deemed sustainable by the IMF, unless
either euro zone member states write off a portion of their
loans to Greece or the IMF extends its deadline by two years.

Germany and other EU states say writing down their loans
would be illegal. The European Central Bank, a major holder of
Greek bonds, has refused to take a “haircut” on its holdings.

Berlin contends a debt haircut would not tackle the roots of
Greece’s debt problems and would be unfair to other euro zone
countries that have taken tough steps to improve their finances.

“It would cost money, it would be a fatal signal to Ireland,
Portugal and possibly Spain, as they would immediately ask why
they should accept difficult conditions and push through
difficult measures…and it would have consequences under budget
law,” Norbert Barthle, budget spokesman for German Chancellor
Angela Merkel’s Christian Democrats said.

Without corrective measures, the Eurogroup document said,
Greek debt would be 144 percent in 2020 and 133 percent in 2022.

Juncker said after a meeting a week ago that he wanted to
extend the target date to reduce Greek debt by two years to
2022, but Lagarde insists the 2020 goal should stand. She is
believed to favour euro zone member states taking a writedown.

The European commissioner for economic affairs, Olli Rehn,
said on Tuesday that the euro zone should be ready to do more
for Greece in the coming years, an apparent nod to the idea of
government-sector debt writedowns.

“It’s essential now that we take a decision on a set of
credible measures on debt sustainability and, at the same time,
we need to be ready to take further decisions in the light of
future developments,” Rehn said.


Among the main measures under consideration to bring the
debt burden down as rapidly as possible is a buy-back under
which Greece would offer to purchase bonds from private
investors at a sharp discount to their face value.

Schaeuble told the lawmakers on Wednesday that a debt
buyback could be part of the solution.

Several options are under consideration including using
about 10 billion euros of money lent by the EFSF to buy back
bonds at between 30 and 35 cents on the euro.

There are also proposals to reduce the interest rate on
loans already extended by euro zone countries to Greece, to
allow a long moratorium on interest payments and lengthen the
maturities on loans, all of which would cut the debt burden.