Measures being considered to make Greece’s debt sustainable need to cut that burden significantly, an International Monetary Fund spokesman said as the country’s creditors negotiate ways to unfreeze its bailout package.
“Our view is that there are many options to help reduce Greece’s debt burden and they should be considered,” IMF spokesman Gerry Rice told reporters in Washington today. Debt buybacks “could be useful if they were implemented in such a way as to deliver a meaningful reduction.”
The combination of Greek political indecision and economic weakness in recent months has jeopardized the country’s efforts to meet a debt target of 120 percent of gross domestic product by 2020, from a peak now forecast at 192 percent in 2014. Germany has said it is open to discussing a proposal for a buyback of Greece’s debt that is supported by the European Central Bank, which holds about 45 billion euros ($58.2 billion) of Greek government bonds.
ECB Executive Board member Joerg Asmussen first aired the buyback plan in an interview with German newspaper Sueddeutsche Zeitung released on Oct. 12. Greece could be lent money to buy back its own bonds, which have a current market worth below their nominal value, he said.
Such a move would not amount to a debt write-off, Asmussen was cited as saying. He also reiterated that the ECB could not buy the debt for the Greek government.
Greek stocks today dropped for a sixth day, headed for the biggest weekly retreat in four years, amid concern that the country’s coalition government will fail to enforce the austerity program demanded by the European Union. The ASE Index sank 5 percent to 761.24 at the close of trading in Athens, extending the decline so far this week to 13 percent.
While finance ministers from the euro area said yesterday resuming loans for Greece requires more effort by the government to rein in its budget deficit and deregulate the economy, the IMF has said European policy makers must decide how to fill Greece’s financing gap and reduce its debt for the next disbursement to occur. Berlin has already rejected any write-off of euro-area loans to Greece.
“The IMF does not seem convinced about the debt buyback idea, which is going to put further pressure on the ECB’s Greek holdings,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “We should not underestimate the possibility that the IMF digs in its heels over Greece’s debt trajectory, potentially withholding its share of funding.”
The next disbursement would be part of a 130 billion-euro rescue package approved earlier this year after an initial 110 billion-euro bailout in 2010.
“We called on the Greek authorities to solve remaining issues so as to swiftly finalize the negotiations,” Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement yesterday after leading a two-and-a-half-hour conference call with the finance chiefs. He said a scheduled Nov. 12 meeting of the ministers in Brussels would “seek to conclude on the program.”
IMF Managing Director Christine Lagarde participated in that call and will probably attend the Nov. 12 meeting, Rice said today. The IMF cannot lower its interest rates for Greece and has already indicated that it wouldn’t lend more money to the country.
Rice also said he expects a team to return to Cyprus soon after receiving counter-proposals from the authorities on a program of measures under a potential loan.
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