Euro Finance Chiefs to Defer on Greece
European finance chiefs are set to defer ratifying a 130 billion-euro ($173 billion) rescue for Greece, pressing the government in Athens to put a newly struck austerity plan into action.
“It’s up to the Greek government by concrete actions -- through legislation, other actions -- to convince its European partners that the second program can be made to work,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said today as he arrived for an emergency meeting of euro-area finance ministers in Brussels.
European stocks rose for the first time in four days and the euro reached a two-month high against the dollar as the accord in Athens after all-night talks spurred optimism over enactment of the financial lifeline and debt-swap agreement needed for Greece to dodge default and economic collapse.
European Central Bank President Mario Draghi and Executive Board member member Joerg Asmussen joined the talks after the bank’s governing council met in Frankfurt. Representatives for private-sector creditors who have been negotiating the bond swap, the Institute of International Finance’s Charles Dallara and Jean Lemierre, are also on hand.
Resolution of the aid talks, which have dragged on since July, would allow Greece to make a 14.5 billion-euro bond payment on March 20 and contain the threat that speculators will target debt-addled nations including Italy and Portugal.
Investor attention switched to the Brussels after a focus on Athens the past week. More than six days of talks stalled overnight over 300 million euros of pension cuts. Discussions were later resolved with Prime Minister Lucas Papademos declaring a “general agreement.” He didn’t disclose details.
Seeking to reduce Greece’s debt to 120 percent of gross domestic product from 160 percent last year, Papademos and party chiefs agreed to extend budget cuts this year by 1.5 percent of GDP. Measures range from a 20 percent reduction in the minimum wage to lower pension payments and immediate job cuts for as many as 15,000 state workers.
Bondholders meeting in Paris today discussed accepting an average coupon of as low as 3.6 percent on new 30-year bonds in the proposed debt swap. An agreement would slice 100 billion euros off more than 200 billion euros of privately-held debt and a formal offer must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due.
“We have also a deal with the private creditors,” Greek Finance Minister Evangelos Venizelos said. “We need now the political endorsement of the eurogroup for the final step.”
In Frankfurt, Draghi left the open the possibility the ECB will participate in the debt relief by giving up some of the profits of the Greek bonds it has bought during the crisis. He nevertheless rejected selling the bonds to Europe’s temporary bailout fund at a loss because doing so would amount to “monetary financing” of governments, which is banned by European treaties, he said.
The price Greece pays for outside support may be a deeper recession as its economy contracts faster than originally estimated. Unemployment climbed in November to 20.9 percent. That backdrop has led politicians to fret about losing voter support ahead of elections that may come as soon as April. Striking workers this week derided the conditions demanded for outside aid as “blackmail.”
The finance officials arriving in Brussels noted the progress made since a Feb. 4 conference call with Venizelos that he subsequently described as “very difficult.”
‘30 Seconds to Midnight’
“The Greeks understand that it’s not five minutes to midnight but 30 seconds to midnight,” Luxembourg Finance Minister Luc Frieden said. “The fact that we’re meeting in Brussels after the meeting was postponed several times is a sign that something is happening, that Athens understood our message from the telephone conference on Saturday,” he said.
Greek lawmakers are set to convene this weekend to begin voting on the austerity measures, Christos Protopapas, a spokesman for the Pasok socialist party, said today. An implementation law will be considered in the next 10 to 15 days, he said.
It’s now more than two years since Greece sparked a regional crisis by revising its budget math. Failure to contain it led to Portugal and Ireland requiring bailouts and has propelled the euro-area economy toward its second recession in three years and forced the ECB to issue emergency loans to keep banks from failing.
Signs have grown that the turmoil may be easing with Bloomberg indexes of Europe’s banks and financial conditions rising to the highest since August and bond yields from Italy to Spain falling. Italian Prime Minister Mario Monti was today praised in Washington by President Barack Obama for “taking impressive steps” after pushing through 20 billion euros in fiscal cuts and reducing regulations.
A Greek deal would allow Europe’s leaders to begin talks on whether to increase a planned limit of 500 billion euros on overall rescue lending that will take effect in July when a permanent rescue fund comes on line aside the temporary European Financial Stability Facility.
Increasing the so-called firewall has been identified by foreign governments as a prerequisite for more money for the International Monetary Fund, which wants a $500 billion fillip to insulate the global economy from Europe’s travails. Mexican Finance Minister Jose Antonio Meade said yesterday the Group of 20 nations is unlikely to agree on extra cash for the lender when finance chiefs meet in two weeks.
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