Greece says lenders closer to debt viability compromise

ATHENS Fri Nov 23, 2012 11:52pm IST

Greece's Prime Minister Antonis Samaras arrives at the European Union (EU) council headquarters for an EU leaders summit discussing the EU's long-term budget in Brussels November 23, 2012. REUTERS/Francois Lenoir

Greece's Prime Minister Antonis Samaras arrives at the European Union (EU) council headquarters for an EU leaders summit discussing the EU's long-term budget in Brussels November 23, 2012.

Credit: Reuters/Francois Lenoir

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ATHENS (Reuters) - The International Monetary Fund has relaxed its debt-cutting target for Greece and only a 10 billion euro gap remains to be filled for a vital aid installment to be paid, Greece's finance minister said on Friday.

But other sources involved in talks between euro zone finance ministers and the IMF cautioned that the funding gap was far bigger than suggested by Greece, and the two sides were not on the verge of striking a deal to solve the euro zone's most intractable problem, they said.

Finance Minister Yannis Stournaras signalled a compromise was near by saying the IMF had agreed to declare Greece's debt viable if it is projected to fall to 124 percent of GDP in 2020, giving ground on its earlier target of 120 percent.

The Eurogroup of euro zone finance ministers has already agreed on measures to reduce Greek debt to 130 percent of GDP in 2020, Stournaras said.

"That leaves a gap of 5-6 percentage points of GDP to be covered - about 10 billion euros," he told reporters in Brussels.

The EU and IMF are considering bringing the debt down through a combination of interest rate cuts and extension of maturities on the country's loans, plus a debt buyback and a plan under which the European Central Bank would forego profits on its Greek bond holdings, a Greek finance ministry official told Reuters.

Teetering on the verge of bankruptcy, Greece is increasingly frustrated that its lenders are still squabbling over a deal to unlock fresh aid even though the government has pushed through unpopular austerity cuts that brought thousands on to the streets.

Athens says time is running out and that it needs its next installments of almost 44 billion euros in aid to recapitalise banks and stabilise its economy. Its next big debt repayment falls due in mid-December.

It expects the aid to be paid out in one installment, the government spokesman told Greek radio, playing down recent speculation that it could dribble out in bits.

The euro hit a three-week high against the dollar on growing optimism that Greece's lenders were close to an agreement.


Euro zone finance ministers, the IMF and ECB failed earlier this week to agree on how to get Greek debt down to a manageable level and will have a third go at resolving the issue on Monday.

European paymaster Germany expressed optimism that a deal could be struck at that meeting. "I am very hopeful that we can reach a solution on the question of the payment of the Greece tranches on Monday," said Chancellor Angela Merkel.

She repeated her opposition to euro zone member states writing off a portion of their Greek bond holdings, known as a haircut. "We reject such a debt haircut. We want to find another solution," she told a news briefing.

Euro zone finance ministers will also hold a teleconference on Saturday to prepare for Monday's meeting, officials said.

A senior source involved in the negotiations confirmed that the IMF would now accept 124 percent as a target but was dismissive of the gap amounting to only 10 billion euros.

"There are still things missing to an agreement," the source said. "The 10 billion is too optimistic."

A Greek finance ministry official said the ECB could relinquish 9 billion euros of profits on the Greek bonds it holds, as part of the measures to bring debt in 2020 down from a previous estimate of 144 percent of GDP.

Other options include saving 8 billion euros from cutting the interest rate, extending maturities on Greek debt and spending 10 billion euros to buy back around 30 billion euros in debt at a deep discount.

Greece has already begun preparations for the buyback, which could be completed by the end of the year if euro zone finance ministers approve the move, the official said.

Current government projections put Greek debt at 340.6 billion euros, or 175.6 percent of GDP at the end of 2012. It is expected to peak at 357.7 billion euros, almost 191 percent, in 2015.

According to a document circulated at the Eurogroup meeting, Greece's debt cannot be cut to 120 percent of GDP by 2020 unless euro zone governments accepted the haircut, which Germany has said would be illegal.

The document prepared for the meeting of euro zone finance ministers and seen by Reuters spelled out several options now cited by Greek officials - including using about 10 billion euros to buy back bonds at between 30 and 35 cents in the euro.

Many Greek retail bondholders are still angry about a debt restructuring earlier this year that imposed heavy losses on private holders of Greek debt.

About 40 retail bondholders pushed past security at the ruling conservative New Democracy party's offices in Athens on Friday, pelted a portrait of party founder Constantinos Karamanlis with eggs and scuffled with guards. (Additional reporting by Annika Breidthardt in Berlin and Jussi Rosendahl, writing by Deepa Babington, editing by Mike Peacock and David Stamp)


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