President of the European Central Bank Mario Draghi, right, talks with Dutch Finance Minister Jeroen Dijsselbloem, left, during the Eurogroup finance ministers meeting in Brussels, Monday. Greece’s international lenders have prepared a “positive” report on the country’s reform efforts.
BRUSSELS — Greece’s international creditors are proposing giving the country two more years to reform its economy, but European finance ministers were split Monday over how to put together a comprehensive deal to help Athens dig out of its mountain of debt.
A draft report on Greece’s progress from the so-called troika of creditors — the European Central Bank, the European Commission and the International Monetary Fund —recommends giving Athens until 2016 to implement the reforms necessary to restart growth and bring its debts down to a sustainable level. The document was obtained by The Associated Press.
Ahead of Monday’s meeting of the 17 eurozone finance ministers in Brussels, Irish Finance Minister Michael Noonan said the extension would mean $39.48 billion to $40.75 billion in extra financing.
The troika has pledged $305 billion in bailout loans to keep Greece afloat while it implements economic reforms and austerity measures to get its finances in order.
Greece is waiting for the next $40 billion installment of its bailout loan before it faces a bond repayment Friday that it may not be able to afford otherwise. It has passed a series of spending cuts and reforms in the past few days to meet the conditions of the loan. But in recent months, it has become clear that the country’s bailout program is way off track, and deep disagreements persist among its creditors on how to right it.
The main aim of the bailout program is to get Greece back to a point where it no longer relies on international aid and can raise money on the debt markets. But the Greek government has been asking its creditors for more time to reach that goal— hoping that a slower pace will release the stranglehold the cuts have on the economy.
The country is heading into the sixth year of a deep recession, with more than a quarter of Greeks unemployed. Without growth, Greece has no possibility of collecting enough in taxes to put a dent in its debts. In fact, current projections suggest the country has no hope of reaching the program’s goal of bringing its debts down to 120 percent of GDP by 2020 — a level generally considered sustainable.
“The two-year extension of the adjustment period will mitigate the impact on the economy, while securing a sustainable fiscal position,” the draft document, obtained by The Associated Press, stated.
Jean-Claude Juncker, head of the group of finance ministers from the 17 euro countries, said the troika had prepared a “positive” report assessing Greece’s progress.
But Germany’s finance minister, Wolfgang Schaeuble, said Greece can’t receive the next installment of its bailout loan until the question of the country’s debt sustainability is solved.
“We first have to see if Greece has delivered,” he said, as he headed into the meeting Monday. “I have not seen this.”
The issue of Greece’s debt is a divisive and important one. If Greece’s debts can’t be reduced to a level where the country can reliably pay them down, then the billions of euros in bailout loans already agreed for Greece will have been wasted. But easing up on the timeline will cost more money, and politicians in other countries are nervous they won’t be able to sell that to voters. Some countries are also irritated that Greece has consistently missed the deadlines set for it.
The draft troika report is short on details, but a eurozone diplomat said that, if the timeline for Greece’s program is extended, the country will need an extra (euro) 15 billion through 2014 and another (euro) 17.6 billion between 2014 and 2016. Those figures are similar to the total Finance Minister Noonan gave.
Many economists are also suggesting that Greece will never reduce its debts to a manageable level unless its eurozone creditors agree to take losses on some of their loans. Private creditors have already wiped out more than (euro) 100 billion of Greek debt.
French Finance Minister Pierre Moscovici said the ministers had to reach some sort of over-arching agreement on how to move forward on Greece.
“I hope tonight we can find a political agreement in order to say we can go on with the Greek program, let’s put the problems behind us and let’s rebuild confidence in the eurozone,” he said.
He added that the ministers couldn’t ignore the tremendous sacrifices Greece had made in recent days, approving a raft of reform measures and an austerity budget for next year.
“There were these votes, they were courageous,” Moscovici said. “We shouldn’t turn a deaf ear.”
Christine Lagarde, president of the International Monetary Fund, sounded a similar note. “Greece has done an awful lot of work, and now it is time for the creditors to do the same,” she said. What the country needs, she said, was “not a quick fix but a real fix.”
Whatever the outcome of Monday’s meeting, no decision on giving Greece the (euro) 31.5 billion loan will be made because some eurozone parliaments must approve the deal first.
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