Greece Hopes for Delayed Loan Today

Eurozone finance ministers on Nov. 26 will consider for the third time in three weeks whether to sign off on a long-delayed $38.8 billion loan installment Greece needs to keep its debt-crushed economy from crashing, but could face yet another setback.
The bloc’s fiscal chiefs can’t see eye-to-eye with International Monetary Fund (IMF) Managing Director Christine Lagarde over how to reduce Greece’s debt and deficit, including whether granting another two years, until 2022, to meet fiscal targets, as well as other options that include imposing losses on its lenders.
The Troika of the European Union-IMF-European Central Bank is holding back the loan, the first in a second bailout of $173 billion, until a consensus can be reached. Greece was surviving on a first series of $152 billion in rescue loans and Samaras pushed through Parliament an unpopular $17.45 billion spending cut and tax hike plan as a condition of getting the additional aid, and has been frustrated at the delay.
Finance Minister Yiannis Stournaras will be in Brussels hoping to clinch a deal that could include folding in another installment to bring the total to $57 billion, although most of that is set to pay overdue bills and recapitalize the country’s banks that had been pushed toward insolvency after a previous administration imposed 74 percent losses on investors.
Stournaras took part in a Nov. 24 teleconference between the finance ministers that focused on the technical issues involved in finding a formula to reduce Greek debt. Finance Ministry sources told the newspaper Kathimerini there were not any serious disagreements and said they were confident a deal would be reached.
Prime Minister Antonis Samaras spent the last few weeks contacting foreign officials, including Lagarde and US Treasury Secretary Timothy Geithner, to get their support. Final approval may require a fourth gathering, pushing the decision to a previously scheduled meeting on December 3, according to a statement issued by Finland.
So far, the options for debt reduction under consideration include reducing interest on already extended bilateral loans to Greece from the current 1.5 percent above financing costs. Another option, which could cut Greek debt by almost 17 percent of GDP, is to defer interest payments on loans to Greece from the EFSF, a temporary bailout fund, by 10 years.
The ECB could forego profits on its Greek bond portfolio, bought at a deep discount, cutting the debt pile by a further 4.6 percent by 2020, a document prepared for the ministers’ talks last week showed, but some banks are balking, including the German Bundesbank.
Greece could also buy back its privately-held bonds on the market at a deep discount, with gains from the operation depending on the scope and price. To cut the debt more boldly, the IMF wants the euro zone to forgive Greece some of the official loans, in what is called Official Sector Involvement (OSI) but which Germany, the Netherlands, Finland and Slovakia have already rejected as it would make their taxpayers pay for Greece’s negligence.