BRUSSELS (Reuters) - Euro zone finance ministers are likely to give tentative approval for 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 also require 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 of it in exchange for funding.
The final go-ahead from the ministers is likely to come only once the remaining few Greek reforms are in place and once there is agreement in the euro zone on how to reduce the country’s huge debt and secure extra financing while it is being done.
Greece got a second financing program from the euro zone and the International Monetary Fund in February, but two subsequent parliamentary elections and a deeper than expected depression threw its reforms and fiscal consolidation efforts off course and lending was frozen in June.
To get lending going again, Greece had to show it was fully committed to a detailed package of economic reforms, called “prior actions”.
But the euro zone and the IMF also want to be sure that Greek debt, seen at almost 190 percent of GDP next year, will, at some point, fall to a more sustainable 120 percent so that they will not have to keep financing Athens forever.
The IMF and the euro zone 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.
How to reduce debt in a country whose economy is to contract for the sixth year running in 2013 will be another topic for discussion, based on a debt sustainability analysis prepared by the “Troika” - 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’ worth of bonds remaining in private hands offering 25 cents for one euro.
Euro zone officials have asked for a legal analysis of a debt buy-back and a more operational description for the Tuesday talks.
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 there is agreement, proposals on how to cut Greek debt and provide additional financing can be sent to national parliaments for approval, a step that is expected to be completed by November 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 November 28 and euro zone finance ministers will make the final decision to pay the next tranche to Athens on December 3, according to the schedule seen by Reuters.
Greece and the European Commission would then sign a revised memorandum of understanding on December 4 and Greece would get the money on December 5, according to the timeline.
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, were to be paid out together with the overdue ones.
More than half of that total is cash to recapitalize Greek banks after a restructuring of Greek debt badly shook their capital base. But some officials said that incomplete data on the recapitalization might result in the payout of 31, rather than the full 44 billion.
Additional reporting by Michelle Martin in Berlin; Editing by Robin Pomeroy