Euro Group Mulls Greek Aid Via Bond Profits, Urpilainen Says

Euro area finance ministers are discussing using profits on Greek bonds held by the European Central Bank to boost the country’s debt sustainability target, Finnish Finance Minister Jutta Urpilainen said.

“We’re currently negotiating on what the whole picture will look like,” Urpilainen said in an interview in Helsinki yesterday. “The situation is live.”

Asked whether profits arising from the ECB’s Securities Markets Program can be used to ease Greece’s debt burden, Urpilainen said: “There are different proposals on the table, of which this is one. We’ll have to see how it looks as a whole.”

The ECB has about 208 billion euros ($266 billion) of European government debt bought through the SMP outstanding. The program was announced in May 2010 and mothballed in March. The Frankfurt-based central bank sterilized its purchases by taking the cash back as deposits to avoid boosting inflation.

Urpilainen told reporters in parliament today that many issues blocking a decision on Greece remain, though she “hopes” an agreement will be reached at today’s meeting of finance ministers. Finland is willing to give Greece more time, though the northernmost euro member won’t back proposals to give the government in Athens more money, she said.

Brussels Today

The Brussels meeting today, the second in a week after finance chiefs agreed seven days ago to keep Greece’s bailout aid flowing, underscores skirmishing among EU officials confronting rising unemployment and a slowing economy. In addition to a tussle between the EU and the International Monetary Fund over extending Greece’s debt target by two years to 2022, the ministers are struggling to re-engineer the bailout without putting up more money.

While ministers aim to find agreement today, it’s “impossible” to say whether they’ll reach that goal, Urpilainen said in the interview.

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. Euro area governments are trying to work out how to plug Greece’s 15 billion-euro financing gap through 2014, opened up by their decision to give the country two extra years to reduce its budget deficit.

Taxpayer Stress

Even as European leaders have signaled willingness to avert a Greek exit from the single currency, they are attempting to manage the bailout without added stress on taxpayers. Finland’s Prime Minister Jyrki Katainen, speaking on YLE Radio Suomi on Nov. 18, rejected providing Greece with further funds, saying that extending the existing loans may be “one way” to ease the country’s burden.

Greece’s economy has contracted for 17 quarters in a row and by the end of this year output will have dropped by a fifth since it entered its recession in 2008. The nation has negotiated two rescue programs after losing access to financial markets in 2009, sparking the debt crisis that pushed Ireland, Portugal, Cyprus and Spain to also seek bailouts.

Greece’s jobless rate climbed to more than a quarter of the workforce in August, extending its record high as Prime Minister Antonis Samaras pushed through more austerity measures linked to the country’s bailouts from international lenders.

The euro area is also in a recession, its second in four years, as output in the 17-nation bloc slipped 0.1 percent in the third quarter after a 0.2 percent decline in the previous three months. Europe’s economic malaise is deepening as governments across the region impose budget cuts to narrow their fiscal deficits.

“Countries on an unsustainable economic path must lay out long-term plans to remedy the situation,” Urpilainen said.

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