Saturday 24 March 2018

EU officials under pressure to delay new bailout for Greece

Jean-Claude Juncker. Photo: Getty Images
Jean-Claude Juncker. Photo: Getty Images

Luke Baker and Jan Strupczewski

LUXEMBOURG Prime Minister Jean-Claude Juncker said he's confident euro-area finance ministers will make a decision on a bailout for Greece at their next meeting on February 20. Juncker, chairman of the group, issued a statement after the ministers held a conference call yesterday on the Greek package.

Finance officials are now believed to be examining ways of delaying parts or even all of a second bailout programme for Greece while still ensuring it avoids a disorderly default, several EU sources said yesterday.

The delays could possibly last until after Greece holds elections expected in April, they said, although it depends on to what extent Greek political leaders make firm commitments on further spending cuts and labour reforms unpopular with voters.

While most elements of the package, which will total €130bn, are in place, some eurozone finance ministers are not satisfied that all Greece's political party leaders are fully behind the reforms and so want legal guarantees.

It is also not clear that Greece's debt-to-GDP ratio, which currently stands at around 160pc, will be cut to 120pc by 2020 via the agreement, as demanded by the troika of the European Comm- ission, IMF and European Central Bank.

"There are proposals to delay the Greek package or to split it, so that an immediate default is avoided, but not everything is committed to," one official told Reuters.

He added: "There is pressure from several countries to hold off until there is a concrete commitment from Greece, which may not come until after they've held elections."

Under the "split" proposal, a debt swap agreement between Greece and private sector Greek bondholders could go ahead.

The process, which aims to cut Athens' debt burden by €100bn via banks and insurers taking losses, was supposed to begin tomorrow but is now likely to begin next week, depending on the outcome of talks among eurozone finance ministers in the coming days.

If successfully completed, the swap would allow Greece to meet a €14.5bn bond redemption payment on March 20, which, if missed, would result in default.

But the bulk of the €130bn bailout would be held back as leverage over Athens.

The euro slid to its lowest level in more than a week against the dollar and safe-haven German Bund futures rose to session highs.

Greece's conservative party leader Antonis Samaras, widely tipped as the country's next prime minister, pledged in writing that if elected he would stick to an agreed programme of welfare and job cuts -- a commitment demanded by eurozone ministers before they would agree to the new bailout.

"It is fair to say that my patience has run out," Dutch Finance Minister Jan Kees de Jager said . "We have to see the evidence of implementing the measure into law and just promises are not enough, not anymore."


One senior eurozone diplomat said the pressure being applied on Athens to meet its commitments seemed to be working, and suggested that as long as that held, more radical proposals for re-examining the second package might not be necessary.

Germany, Finland and the Netherlands are the countries pushing to delay the package, two other officials said, with Germany the most adamant and suggesting that final approval should only be granted after new elections are held.

Eurozone finance ministers held a conference call yesterday afternoon to discuss how to proceed. It replaced a face-to-face meeting that was cancelled late on Tuesday because Greece had not provided sufficient commitments from its side.

Asked whether the package could be split, a spokesman for the European Commission said it was not yet decided.

One major problem with splitting the package is whether private holders of Greek bonds would be willing to sign up to a swap if Greece's financing, which makes up the bulk of the second package, is not in place, since that would mean the state might not be able to meet future bond payments.

As a result, one eurozone source said it was possible that the entire second package -- the private sector portion and the remainder -- could be delayed until after Greek elections, when everyone hopes for greater clarity and commitment.

"This would mean we have to pay the €14.5bn on March 20, which would be a total waste," said the eurozone source, who took part in discussions among deputy heads of eurozone finance ministries on Tuesday.

"But there is still money left from the first programme so we could do it," the source said, referring to Greece's first, €110bn bailout programme, agreed in May 2010. "This would mean that the talks on the second programme, including PSI (private sector involvement), which is part of the package, would be moved until there is a new Greek government in place."

The frustration expressed by Germany, the Netherlands and others, reflected in the proposal to delay the rescue package, to put pressure on Athens.

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