Eurozone continues with talks on reducing Greek debt

Eurozone finance ministers held a teleconference on Saturday to discuss strategies for making Greek debt sustainable ahead of a new meeting in Brussels on Monday, when they will be under pressure to come up with a definitive solution.

There was no immediate statement after the teleconference, which was part of the continuing discussions that took place over the weekend, including further technical work from the Euro Working Group, aimed at striking a formula that is likely to reduce Greek debt from a projected 189 percent of GDP next year to 124 percent in 2020.

Prime Minister Antonis Samaras returned to Athens on Saturday from the European Union leaders’ summit in Brussels, where the 27 politicians discussed the EU budget. Samaras used the opportunity to speak in person to 12 of his counterparts, including German Chancellor Angela Merkel, French President Francois Hollande and Italian Premier Mario Monti. Sources said Samaras attempted to stress to fellow leaders the economic difficulties faced by Greece, describing the “post-Hiroshima” fallout of the crisis.

Eurozone finance ministers failed to reach a conclusive agreement on how to deal with Greek debt on Tuesday and are to hold their third meeting in two weeks in Brussels this Monday. The solutions that are likely to be on the table are lending Greece money to buy back its bonds at a reduced rate on the secondary market, the European Central Bank returning the profits it made on Greek bonds and Greece’s partners reducing the interest rate on their bilateral loans to Athens.

Kathimerini understands that German Finance Minister Wolfgang Schaeuble had been in a position during last week’s Eurogroup to advocate a drastic reduction in the interest rates on bilateral loans to Greece, as well as the extension of their maturities, to help make Greek debt sustainable. But he ended up adopting a more conservative position after the German government’s coalition partners, the CSU and FDP, advised Chancellor Merkel that such an initiative would not have their support and would not pass through the German parliament.

Beyond domestic politics, one factor that could complicate any deal is that the International Monetary Fund seems to be advocating that any bond buyback scheme should happen immediately, possibly even before December 14, when T-bills worth 3.4 billion euros are due to mature. This would mean a fresh delay for Greece’s loan tranche, which would be held up until the buyback has been completed.

Greece is hoping to receive the whole 44 billion euros due to be released from the bailout program next month. As things stand, all of this money will go to cover immediate obligations. Some 24 billion euros will be used to complete the bank recapitalization program, 9 billion will be invested in the buyback scheme, 4.5 billion is needed to cover the primary deficit, 3.5 billion has been slated to reduce state arrears, 3.4 billion is needed to cover four-week T-bills that mature next month and 500 million euros will go toward covering a bond that matures on December 21.