Eurozone finance ministers are likely to approve the next tranche of loans to Greece on Tuesday although the money is unlikely to be disbursed before December and a deal on debt reduction may need further talks.
Officials familiar with preparations for the finance ministers’ meeting expect a “political endorsement in principle” on unfreezing loans to Athens, after Greece completed almost all the reforms that were required.
“It is clear that Greece has delivered,” the chairman of the eurozone finance ministers, Jean-Claude Juncker, told reporters before the meeting.
“We must still reach an understanding on several details and I would expect that the chances are good that we will come to a final and joint solution this evening. But I’m not entirely certain… about the matter,” he said.
Hours before the meeting views on the outcome were still quite far apart among the individual ministers, but a compromise was possible, officials said.
“I hope, I believe and I want to a find a solution tonight,” French Finance Minister Pierre Moscovici said in Paris.
But Finnish Finance Minister Jutta Urpilainen was less optimistic.
“I’m not at all sure that it will happen. More information is needed before a decision can be made, so the situation is very much open,” she said after briefing parliament in Helsinki.
Greece got a second financing program from the eurozone and the International Monetary Fund in February, but two subsequent parliamentary elections and a deep depression threw its reforms and fiscal consolidation off course.
Lending was frozen in June and to get it going again Greece had to show it was fully committed to a detailed package of economic reforms or “prior actions.”
But the eurozone and the IMF also want to be sure that Greek debt, expected to be almost 190 percent of GDP next year, will fall at some point to a more sustainable 120 percent, so that they will not have to keep financing Athens.
The IMF and the eurozone are at odds on whether to shift the original target date for Greece to do that from 2020 to 2022, torn between the need to retain market confidence and allowing the Greek economy some breathing space.
The ministers will also discuss how to reduce debt in a country where the economy is expected to contract for a sixth year running in 2013.
The talks will be based on a debt sustainability analysis prepared by the IMF, the European Commission and the European Central Bank.
Options include halving the interest on existing, bilateral loans to Greece from the current 150 basis points above financing costs, lengthening their maturities, lowering fees charged by the temporary bailout fund EFSF and a debt buy-back.
Germany has floated an idea that Greece could buy back half of its 60 billion euros in bonds remaining in private hands, offering 25 cents per euro.
Eurozone officials have asked for a legal analysis of a debt buy-back and a more operational description for the Tuesday talks. A senior French official said a decision on the buy-back could even be taken on Tuesday.
“It’s possible as soon as tonight, it’s an option on the menu,” the official said.
German Deputy Finance Minister Steffen Kampeter said that if a deal on cutting Greek debt eluded euro zone finance ministers on Tuesday, work would continue this week.
Once a deal is done, proposals on how to cut Greek debt and provide additional financing can be sent to national parliaments for approval, a step expected to be completed by Nov. 30.
This will give Athens time to complete the few outstanding “prior actions.” International lenders will check if the remaining reforms are in place on Nov. 28 and euro zone finance ministers will make a final decision to pay the next tranche to Athens on Dec. 3, according to the schedule seen by Reuters.
Greece and the European Commission would then sign a revised memorandum of understanding on Dec. 4 and Greece would get the money on Dec. 5.
Having missed two tranche payments because of the suspension of the program, Greece should now get a total of 44 billion euros if the next tranche, due in December, is paid out together with the overdue ones.
More than half of that total is cash to recapitalize Greek banks after Greece’s debt restructuring hurt their capital base.
But some officials said incomplete data on the recapitalization might result in the payout of 31 billion euros, rather than the full 44 billion.
The ministers will also have to decide how to finance two extra years, until 2016, they gave Greece to reach the target of a primary surplus that would allow the country to start cutting its debt pile in a sustainable way.
The troika estimated that such an extension would entail almost 33 billion euros more in financing for Athens, which is politically difficult because of growing opposition to bailouts in many eurozone countries, notably Germany and Finland.
European Central Bank policymaker Joerg Asmussen said on Sunday the eurozone should agree on just two years of funding for Greece and leave further help to be decided later, a view likely to irk the IMF, which wants a permanent solution. [Reuters]