Eurozone officials are expected to press ahead on Thursday with plans to give Athens two more years to meet its budget goals as well as examine ways of closing the yawning gap in Greece’s finances.
Representatives of the International Monetary Fund, the European Commission and the European Central Bank — known as the troika — have been calculating how much more money Athens will need if it is given until 2016 rather than 2014 to reach a primary surplus of 4.5 percent, as agreed in February.
A primary surplus or deficit is the budget balance before the government services its debt. In Greece’s case, it would mean government tax revenues exceeding spending, meaning Athens is beginning to get on top of its budget-deficit problems.
The preliminary findings of the troika show that Greece will need 16 to 20 billion euros in additional funding, one euro zone official familiar with the findings said on Thursday, although the final figure will only be known when the troika publishes a full report, probably in the second week of November.
Greek Finance Minister Yannis Stournaras told Reuters on Sept. 25 a two-year extension would require 13-15 billion euros more, while a euro zone official estimated it in late July at about 30 billion. Other estimates are 18 and 20 billion.
The two extra years would give the fast contracting Greek economy some welcome respite, allowing it to return to growth sooner and therefore increasing the chances the country would eventually be able to make its debt sustainable.
Greece, deep in recession and suffering widespread unemployment, has been pushing for more time and announced on Wednesday it had been granted it. Others indicated it may have jumped the gun a bit with the announcement.
But the critical question is where the money can be found to come up with the 16-20 billion euros that is needed.
One option is to further reduce the interest rate on existing loans to Greece and extend the maturities, but while that would reduce the country’s financing costs to virtually zero, it would not fill the funding gap.
Another option is to bring forward some payments from the IMF that would be granted to Greece at a later date, thereby bridging its immediate funding gap, but again that is not expected to be sufficient.
Instead, junior finance ministers and treasury experts are examining other options such as a debt buyback, taking advantage of the deep discount Greek debt is currently trading at.
And there is the possibility of further direct funding for Greece from eurozone member states.
Any new money would have to come from the eurozone’s permanent bailout fund, the European Stability Mechanism, and would likely face opposition from countries such as Finland, the Netherlands and Germany.
One snag holding up an agreement on an extension for Athens is the opposition of some parties in the ruling coalition in Greece on labour market reforms, the official said.
Stournaras told parliament on Wednesday that Greece had already been granted the two-year extension, but several top eurozone officials, including European Central Bank President Mario Draghi and German Finance minister Wolfgang Schaeuble, said they were not aware of that.
“The statement from Greece yesterday was a bit premature,» the official said.
If an agreement with Athens is reached in time, a decision on the extra money could be taken at the next meeting of euro zone finance ministers in Brussels on Nov. 12.
Despite disagreements over how it will be done, it has become clear in recent days that a two-year extension will be granted and therefore some way will be found to finance it.