European Finance Chiefs Seek to Close Greek Gap Amid IMF Spat

| November 19, 2012 | 0 Comments

European finance ministers aim to
stitch together Greece’s next aid payment this week as a
sputtering euro-area economy and a spat with the International
Monetary Fund cloud efforts to resolve the debt crisis.

The finance chiefs are due to meet in Brussels tomorrow for
the second time in a week after they agreed seven days ago to
keep Greece’s bailout aid flowing. In addition to a disagreement
between the European Union and IMF over softening Greece’s debt
target, the ministers will attempt to re-engineer the current
bailout without asking taxpayers to put up more money.

The talks are “likely to be tense as all players set out
their positions,” Thomas Costerg, an economist at Standard
Chartered
in London, said in an e-mail. “Greece’s debt can is
likely to be kicked further down the road, but we could see some
constructive statements.”

The meeting of the ministers from the 17-member euro area
underscores continuing skirmishes among EU officials confronting
rising unemployment and a slowing economy as they struggle with
the three-year-old debt crisis. The finance chiefs’ talks will
precede a Nov. 22-23 EU summit to resolve the bloc’s budget, a
project threatened by a dispute with the U.K.

With tens of thousands of Europeans staging protests last
week against austerity measures and unemployment, shifting
dynamics in other European countries could foreshadow renewed
conflict — an early election in Italy, a regional vote in Spain
and an approaching bailout package for Cyprus.

Bonds Drop

Spanish bonds fell last week, pushing 10-year yields to the
highest level in six weeks, as a report showed the euro-area’s
economy was pushed into recession in the third quarter. The euro
has fallen 1.7 percent this month against the U.S. dollar,
slipping 0.3 percent to $1.2743 on Nov. 16.

IMF Director Christine Lagarde took issue with European
governments’ decision to push back Greece’s debt-reduction
target by two years to 2022 against the fund’s recommendations,
raising questions over whether the IMF would keep financing
Greece.

Lagarde, who cut short a visit to Southeast Asia to return
to Europe, signaled a potential clash in an interview in Manila
on Nov. 17 by saying she’ll defend the IMF’s credibility.

Lagarde said that she was approaching the talks feeling
“patient and resilient.” Even so, “we never leave the
table,” she said when asked about dropping support.

IMF Target

The IMF target is for a reduction of Greece’s debt to 120
percent of gross domestic product by 2020, from a projected peak
of 190 percent of GDP in 2014. An agreement on what qualifies as
sustainable debt in Greece is required to plug a finance gap of
as much as 32.6 billion euros ($42 billion).

Greece will probably need another aid package for the
period after 2014, European Central Bank Board Member Joerg Asmussen said in an interview with German broadcaster ZDF
yesterday.

Even though European leaders have pledged to do all they
can to avert a Greek exit from the single currency, they’ve
refused to return to parliaments for more funding. Finnish
Premier Jyrki Katainen, speaking on YLE Radio Suomi at the
weekend, again rejected further funds to Greece.

German Finance Minister Wolfgang Schaeuble told reporters
last week that the current package could be re-jigged by cutting
rates on loans or giving Greece extra time. In an interview on
ARD television yesterday, he reiterated his rejection of a third
option: write-offs of the country’s debt held by public
institutions.

Debt Restructuring

Greece, which has already undergone the biggest sovereign
restructuring in history after private investors forgave more
than 100 billion euros of debt in March, may need another write-
off after the government enacts economic reforms, European
Central Bank Governing Council member Jens Weidmann said at an
event in Berlin on Nov. 16.

Luxembourg Prime Minister Jean-Claude Juncker, who oversees
the finance chief meetings of the 17 euro nations, last week
predicted a “definite decision” on releasing the next aid
payment. He said the ministers might have to consult once more,
possibly by teleconference, by the end of November to formally
sign off on the updated rescue package.

“We have to find a common line and we have to do it on
Tuesday,” Schaeuble said on ARD. “We’re working at full steam.
I think we’ll do it.”

In Italy, supporters of Prime Minister Mario Monti
inaugurated a new political party at the weekend to push for a
continuation of the premier’s policies, which have included tax
increases and spending cuts. That comes after Italian President
Giorgio Napolitano said the national vote could be moved up if
parliament completes its agenda by passing a budget plan and new
election rules.

Italian ‘Reconstruction’

Such a scenario could bring forward the vote to March 10,
coinciding with regional elections, rather than in April. Monti
would have to improve on his support level that was 36 percent
in a poll released by SWG Institute on Nov. 16. Sixty-two
percent said they opposed a second Monti term, the poll showed.

“Monti can do the job of reconstruction on Italy and
Europe better than anyone else,” Ferrari SpA Chairman Luca Cordero di Montezemolo said at a rally in Rome on Nov. 17 to
inaugurate the new movement, Toward the Third Republic.

In Spain, Prime Minister Mariano Rajoy told party members
that a vote for Catalan independence on Nov. 25 risked excluding
the region from the EU. Calling an election in the region a
“mistake,” Rajoy said the vote has wasted time, as polls
showed a decline in support for Catalonia’s ruling party.

“Today it is in Europe because it is in Spain, and it
benefits from Europe as the rest of Spain does, and it
contributes to Europe as the rest of Spain does,” Rajoy told a
meeting of his People’s Party in the Catalonian city of Girona.

To contact the reporter on this story:
Patrick Donahue in Berlin at
pdonahue1@bloomberg.net

To contact the editor responsible for this story:
James Hertling at jhertling@bloomberg.net


Enlarge image
IMF Director Christine Lagarde

IMF Director Christine Lagarde

IMF Director Christine Lagarde

Kiyoshi Ota/Bloomberg

International Monetary Fund Director Christine Lagarde took issue with European governments’ decision to push back Greece’s debt-reduction target by two years to 2022 against the fund’s recommendations.

International Monetary Fund Director Christine Lagarde took issue with European governments’ decision to push back Greece’s debt-reduction target by two years to 2022 against the fund’s recommendations. Photographer: Kiyoshi Ota/Bloomberg


Greek Bank Recapitalization Will Spur Growth

Nov. 16 (Bloomberg) — Konstantinos Boukas, director of asset management at BETA Securities SA, discusses the outlook for the Greek economy and bank recapitalization.
He speaks from Athens with Guy Johnson on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)

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