Euro-area finance ministers try for the third time this month to clear an aid payment to Greece and forge a blueprint to keeping the country a solvent member of the currency bloc.
Finance chiefs from the 17-member single currency return to Brussels Monday, less than a week after an all-night meeting failed to yield agreement and days after a European Union summit broke up without a proposed seven-year budget. At stake at the euro meeting is the continuation of a three-year mission to return Greece to financial health.
“There’s no time to waste” in finding a solution for Greece, Chancellor Angela Merkel told reporters in Brussels Friday. The German leader and French President Francois Hollande agreed that ministers must make a breakthrough at the meeting, French aides told reporters.
Efforts to resolve the European debt crisis have stumbled after the European Central Bank gave leaders more time with its September pledge to purchase sovereign debt. Divisions were on display Sunday in Spain, as voters in Catalonia voted on whether to take a step toward independence for the region, risking the country’s fragmentation.
Euro-area finance ministers held a conference call Saturday to prepare for the Brussels meeting. A breakthrough hinges on coming up with 10 billion euros ($13 billion) through reductions in interest rates charged by creditors and a debt buyback financed by bailout funding. The gap emerged when the finance chiefs agreed this month to give Greece two more years to meet targets.
The agreement could raise Greece’s debt target to 124 percent of gross domestic product in 2020 from a previous goal of 120 percent, a Greek official said on Nov. 22 in Brussels. Once the deadlock breaks, Greece would get a payout of at least 31 billion euros.
Disagreements over the plan to reduce interest rates have been a key roadblock, since a cut would set the rates below the cost of funding for some of the 17 euro-area countries, the Greek official told reporters.
Greek Prime Minister Antonis Samaras, who has pushed through the reductions in pensions, wages and benefits, said it’s the creditors’ turn to step up. European leaders have lauded Samaras for delivering the measures in the face of public protests. “We have done our part,” he said last week.
The squabbling over Greece’s extra time has also stirred tensions with the International Monetary Fund, which has provided about a third of almost 150 billion euros in loans delivered to Greece since 2010. The IMF has been firmer about holding to the 120 percent target by 2020.
“Everyone showed up with their ‘red lines’ and nothing got decided,” Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, wrote last week about the last meeting. He attributed the policy lag to the “absence of acute market pressure.”
Greek bonds have rallied on the prospect that a deal will keep funds flowing, with yields on 10-year notes sliding as low as 16.36 percent on Thursdaty, the lowest since Greece’s debt was restructured in March. Spanish 10-year yields also fell last week, sliding to 5.6 percent.
ECB Board Member Joerg Asmussen told Bild newspaper that he “hopes very much” the ministers clinch a deal. In order to close the budget gap, “everybody has to move,” Asmussen told the newspaper in a pre-release of Monday’s edition.
Germany, the biggest European economy and linchpin for any deal, rejects a debt write-off, the most extreme step and one suggested by both ECB policy maker Jens Weidmann and the IMF
German Finance Minister Wolfgang Schaeuble, who discussed the issue with colleagues at a meeting in Paris last week, excluded a debt write-off that would cost taxpayers in creditor countries, though the possibility could re-emerge in 2015, Welt am Sonntag newspaper reported, without saying where it obtained the information.
European unity was also tested at last week’s summit, where leaders failed to bridge differences over a spending plan for the years 2014-2020 that would total about 1 percent of EU-wide GDP. Wealthier countries such as Germany, the U.K., Denmark, Sweden and the Netherlands joined forces to scale back what they pay to the EU’s collective pool, whittling down the original proposal of more than 1 trillion euros.
The EU leaders plan another summit early next year.
“Anything short of admitting that our talks have been extraordinarily complex and difficult would not reflect reality,” Jose Barroso, head of the European Commission, told reporters after the two-day meeting.
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