Brussels planning to give Greece more time to repay sovereign debt
Published 18/05/2011 | 05:00
THE European Commission yesterday gave its strongest indication yet that it would give Greece more time to repay its debts, but insisted that reneging on any payments was out of the question.
"While debt restructuring is not on the table, a Vienna-type initiative that aims at maintaining the exposure of private investors in Greece could be pursued, as was just agreed for Portugal," economics chief Olli Rehn said after a two-day meeting of finance ministers.
Mr Rehn was referring to the January 2009 plan by the World Bank, IMF and several other international institutions asking large banks to maintain their investments in east and central European countries.
A similar condition was attached to the €78bn Portuguese bailout, which was given the official nod by EU finance ministers yesterday.
At Finland's insistence, the government in Lisbon was told to begin negotiations to "encourage private investors to maintain their overall exposures on a voluntary basis", preventing a capital flight from the country on the scale seen last year in Ireland.
"In this context, a voluntary extension of loan maturities -- the so-called reprofiling or rescheduling on a voluntary basis -- could also be examined [for Greece]," Mr Rehn added.
The EU -- and especially the ECB -- continues to maintain its stance that a restructuring or partial default by any eurozone member would spook investors and bring down neighbouring countries.
However, consensus is growing among Greece's EU partners that the €110bn in international loans promised to the country last May is not enough to relieve the government's massive debt burden -- which is set to top €345bn this year, or 153pc of the country's annual output.
The head of the eurogroup of single currency countries, Jean-Claude Juncker, said on Monday that extra aid for the embattled country was not being ruled out.
But any concessions for Greece will hinge on the Socialist government beginning a €50bn privatisation programme -- €15bn in assets to be sold off this year and next -- and enacting further spending cuts to meet a 2011 budget deficit target of 7.4pc of GDP.
Asked if Ireland could benefit from a similar initiative, Finance Minister Michael Noonan said the option was "not being advanced as a policy position at all".
"Ireland should be looking to put as much space between itself and Greece as possible," said one observer. "Asking to follow Greece with an extension is the last thing they should want to do."
Ireland is instead concentrating on convincing France to drop its insistence on a corporate tax hike as a quid pro quo for lowering the interest rate on its bailout loans, Mr Noonan said, admitting the situation had developed into a "stand-off".
Meanwhile, ministers at the Brussels talks also appointed Italian central banker Mario Draghi to the helm of the ECB when Frenchman Jean-Claude Trichet steps down in October.
They also signed off on new rules curtailing the practice of naked short-selling of EU sovereign debt, where traders sell bonds they don't own on a bet the price will fall.
EU financial markets chief Michel Barnier said the accord would prevent "dangerous and real" speculators betting on sovereign defaults.