Greece may need as much as 32.6 billion euros ($41 billion) in extra financing through 2016, putting pressure on a German-led bloc of creditors to make concessions in order to prevent a renewed flareup of the European debt crisis.
Plans to give Greece two more years to meet deficit-reduction targets would open up financing gaps of 15 billion euros through 2014 and 17.6 billion euros in 2015-2016, according to an assessment by the country’s creditors that was obtained by Bloomberg News.
The report ahead of tonight’s meeting of euro-area finance ministers in Brussels gave a mixed review of Greece’s progress from debt to recovery, saluting Prime Minister Antonis Samaras’s coalition for “a significant catching-up,” while saying that “risks to the program remain very large.”
Greece’s recession-hit and debt-encumbered economy returns to the spotlight just as concerns mount over Spain and Cyprus and at a time when crisis management is clouded by forecasts that the 17-nation currency bloc’s economy will virtually grind to a halt next year.
Representatives of creditor governments said they won’t be rushed into easing up on Greece. On his way into the meeting, Finance Minister Wolfgang Schaeuble of Germany, the biggest contributor to the European bailouts, said the priority is on “thoroughness” and added that Germany’s stance will be dictated by its parliament.
“The Greeks have left a lot of things until the last minute, so we’ll also take the time to consider where we are,” Dutch Finance Minister Jeroen Dijsselbloem said. He and Finnish Finance Minister Jutta Urpilainen floated the possibility of a follow-up meeting later this week.
While the next aid disbursement of 31.5 billion euros won’t be certified tonight, the ministers will find a workaround to prevent Greece from defaulting on a 5 billion-euro bill redemption on Nov. 16, a European official told reporters in Brussels on Nov. 9.
Estimates from the “troika” of the European Commission, European Central Bank and International Monetary Fund form the backdrop to the deliberations over Greece, which triggered the crisis by discovering an unexpected budget hole in October 2009. Since then, European governments and the IMF have lent Greece 148.6 billion euros, the ECB has bought Greek bonds and private creditors have written off more than 100 billion euros of Greek bond holdings.
The troika’s draft assumed that Greece will succeed in getting two additional years, until 2016, to meet fiscal targets demanded by its lenders. Estimates of the financing gap were in brackets, indicating that they could change before European governments complete work on the rescue package.
The 115-page draft didn’t include proposals for plugging the financing hole and two critical sections -- on Greece’s debt sustainability and recommendations for next steps in the three-year bid to turn the country around -- were left blank.
Making Greece’s debt “sustainable,” previously defined as cutting it to 120 percent of gross domestic product by 2020, is critical for keeping the IMF involved. The troika said Greece’s debt will peak at 190.1 percent of GDP in 2014.
Managing Director Christine Lagarde didn’t show the IMF’s hand today. Arriving at the meeting, she said the Washington-based lender will play its part in a solution, adding that Greece needs a “real fix,” not a “quick fix.”
Options floated for plugging the financing hole include cutting the interest rates and extending the maturities on Greece’s aid loans, accelerating rescue bailout payments and engineering a buyback of Greek debt, most of which is held by public creditors. German officials have said no to outright debt relief.
“We have to approach the issue a bit more creatively through reshuffling, through possible extension of payment goals or perhaps deploy profits from the ECB,” Austrian Finance Minister Maria Fekter said.
Luxembourg Prime Minister Jean-Claude Juncker, chairman of the meeting, said the troika report points to the continuation of Greece’s aid program, even if “definitive decisions” will wait until later.
“The overall orientation that’s emerging from the preparatory work is such that the next disbursement to Greece should be organized in the best possible way,” Juncker told reporters. He added that he was “quite impressed” with last week’s Greek economic-overhaul package and last night’s passage of the 2013 budget by a 167-128 margin in parliament.
In the troika report, praise for the Samaras government’s budget cuts and economic shakeup blended with concern that “vested interests” and “powerful pressure groups” will frustrate the reforms. Demonstrations and strikes have blunted past revamp efforts, and 15,000 people protested outside parliament in Athens last night.
“The key risks concern the overall policy implementation, given that the coalition supporting the government appears fragile and some components of the program face political resistance, despite the determination of the government,” the troika said.
Europe’s handling of the crisis is being colored by a deteriorating economy in the northern creditor countries, with export-driven Germany becoming less resistant to the contraction gripping southern Europe.
The commission last week cut its forecast for German growth in 2013 to 0.8 percent from a 1.7 percent forecast made in May. The result will be near-stagnation across Europe, with the overall euro economy eking out growth of 0.1 percent, down from a May forecast of 1 percent.
Germany couldn’t escape a euro-area recession, Chancellor Angela Merkel said today. On a visit to Portugal, one of four countries tapping emergency aid, she said the country’s outlook is “very much improved.”