Euro partners see Greece softening line on ending support

BRUSSELS – Greece’s partners in the euro believe Athens is changing its mind about giving up on their financial help next year and might ask for a credit line to replace funds from the IMF.

Eurozone officials told Reuters that Greece seemed to be having second thoughts about a return to purely market funding after pressure from EU powers – and from investors who sold off Greek bonds this week. They also said Europeans were resisting a push by Athens to end borrowing from the IMF, which is unpopular in Greece and causing political problems.

“There is recognition on the Greek side that a total cut-off from the eurozone and the IMF programs is not in their best interest,” one eurozone official said. Another EU official said a sharp rise in Greek debt yields had been a “reality check,” while several officials said talks at an EU finance ministers’ meeting in Luxembourg this week had also helped change Greek minds.

A senior Greek government official denied Athens is reconsidering its plans.

“This is not true. We reiterated our plan today. We outlined the same targets and a timeframe which we have already announced, following the same steady course: in agreement with our lenders and with persistence on reforms,” the official said on Wednesday.

With an eye on a risk of early elections next year and the deep unpopularity of conditions imposed by international lenders in return for bailouts in recent years, Prime Minister Antonis Samaras said on Friday he would not renew a eurozone package that expires this year and would exit a program with the International Monetary Fund in March, a year ahead of schedule.

But eurozone officials point to a disconnect between Greek politics and international economics. The government hopes for favor by announcing an exit from hated credit terms imposed by foreigners – especially the Washington-based IMF. But investors see its finances as still too fragile to rely on the market.

Athens’s stock market has fallen more than 11 percent in the past two days and 10-year Greek bond yields soared more than 80 basis to 7.85 percent on Wednesday, reflecting investor unease about Greece’s ability to fund itself.

Athens, eurozone officials say, could be seeking a stand-by facility from its partners and want the Europeans to extend enough credit to replace what it gives up from the IMF.

The officials say conditions would still apply to any new funding – and they are unwilling to let Greece cut the IMF out of the picture since the terms the IMF sets aid Athens’s credibility with private investors.

Greece is due to hold discussions over the next two months with eurozone leaders on whether it can exit all its bailout programs early next year. Its partners are highly skeptical and worry that new financial problems for Greece could disrupt the eurozone as a whole, as they did over the past few years.

“That’s way too optimistic,” one senior EU official said of the Greek plan to rely on market funding next year, adding that the conditions applied to eurozone and IMF loans were vital to persuading other lenders that the country was creditworthy.

“Investors won’t go there without a program,” he said.

The current eurozone lending plan ends in December. The IMF program is due to last until March 2016 with some 12 billion euros still available for Athens. But the government has said it would like to end the arrangement a year early.

IMF may have to stay

Samaras’s conservatives trail the left-wing opposition SYRIZA in opinion polls and a parliamentary vote to elect a new president could, if the government is unable to secure support for its candidate, trigger a parliamentary election.

“Because of historic reasons, the IMF is portrayed in Greece as the villain, while the Europeans are somewhat more acceptable,” one eurozone official said. “The Greeks want to cut loose the IMF and negotiate something with the eurozone.”

Getting rid of the IMF would mean that the troika, a team of officials from the IMF, the European Commission and the European Central Bank that regularly check up on Greek reform progress and are widely disliked in Greece, would disappear.

“From the point of view of Greek domestic politics it would be much better,” a second official said.

But getting rid of the IMF altogether will run into opposition from eurozone lenders.

“It is about the credibility the IMF has with markets, the seal of approval that is important – we would like to have the IMF there,” one senior eurozone official said.

Greek Finance Minister Gikas Hardouvelis met IMF chief Christine Lagarde on Sunday to discuss ending the IMF bailout early, but the statement issued by the IMF after the meeting made no reference to such an option.

Last week, Lagarde said Greece would benefit from a precautionary credit line – an instrument the IMF also has in its arsenal – and that talks were about an “evolution” of the relationship between Athens and the IMF, not an end to it.

Eurozone finance ministers will only decide if Greece should get a follow-up program to its combined eurozone and IMF bailout, worth 240 billion euros, on December 8.

But if more money were needed from the eurozone, one solution could be an Enhanced Conditions Credit Line (ECCL) from the eurozone bailout fund, officials said.

Such a credit line would also involve conditions that Greece would have to meet, allowing the eurozone to retain some control over Greek reforms, and monitoring if the conditions are being met. But the control would be less heavy than now.

The ECCL would also allow Greece to remain eligible for the ECB’s program of government bond purchases – which is only available to countries under an agreed reform program. It would also make it eligible for the ECB’s more recently announced plan to buy Asset-Backed Securities (ABS) and covered bonds. [Reuters]