| 7.1°C Dublin

Crucial period for eurozone as Greek deal nearly agreed

OLLI Rehn, the EU's economic chief, yesterday said that the next three days will be crucial for the eurozone, adding that he expected a Greek-debt deal to be clinched over the weekend.

"We are very close to a deal, if not today then over the weekend and preferably in January, not February. We are very close," he told the World Economic Forum in Davos, Switzerland.

German Finance Minister Wolfgang Schaeuble, speaking on the same panel as Mr Rehn, said crafting a new rescue package for Greece was not easy because of past slippage in its performance, but it would be done in the coming days.

"We don't expect a default in Greece. I know many markets have priced this in for a long time. But I don't expect a default in Greece. If all partners do what is expected of them, we can avoid -- and we will avoid -- a default in Greece.

"Greece has not only to commit itself, Greece has to deliver. Because Greece has committed itself two years ago and not all of the commitments have been delivered, we must not give them the wrong incentives," he said.

Agreement between Greece and its creditors is needed before Europe and the International Monetary Fund (IMF) agree to a second multi-billion euro bailout package due in March.

The emerging private sector bond-swap deal seemed set to leave a funding gap of €12bn-€15bn to bring Greece's debt down to a level of 120pc of annual output regarded by the IMF as sustainable, EU officials said.


Mr Rehn and Jean-Claude Juncker, chairman of the 17 euro area finance ministers, have said European governments and institutions may have to increase their support for Greece.

Spanish Economy Minister Luis de Guindos, who was also involved in the panel discussion, said the ECB should not have to take a writedown on its holdings of Greek government bonds, bought at a discount to calm bond markets, since that could impair its monetary policy.

Mr Rehn said leaders of the 17-nation currency area would decide in the coming weeks whether to combine a temporary rescue fund for countries in difficulty with a new permanent bailout fund to give Europe more financial firepower.

German Chancellor Angela Merkel appeared to throw cold water on the idea earlier this week, but EU officials say a deal may still be possible. By combining the €250bn left in the temporary European Financial Stability Facility, a planned €500bn of the permanent European Stability Mechanism and an extra €500bn sought by the IMF, "you can calculate in which ballpark we are talking", said Mr Rehn.

US Treasury Secretary Timothy Geithner said: "They're making progress on reforms; they're changing the institutions of Europe to put better discipline on fiscal policy.

"You have three new governments doing some very tough things. You have an ECB doing what central banks have to do. You see them try to strengthen the financial sector."

Irish Independent