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A woman passes by piles of garbage amassed during succesive strikes by municipal workers in the Greek city of Thessaloniki. AP Photo/Nikolas Giakoumidis
debt mountain

Eurozone finance ministers meet (yet again) to try to fix Greece

This will be the third time in two weeks that finance ministers from across the EU will meet to deal with the the threat of bankruptcy for Greece.

EUROZONE FINANCE MINISTERS will meet later today for the third time in two weeks to discuss immediate funding to avert a threat of bankruptcy for Greece and to deal with the country’s ever-growing mountain of debt.

Greece has been waiting since June for a loan instalment of €31.2 billion to avoid running out of money sometime around the end of the year.

The funds are part of a back-up €130 billion rescue granted early this year.

By the end of the year, Athens is also due to receive two more aid payments, worth €5 billion and €8.3 billion, in exchange for which it has pledged to implement a new series of radical austerity measures to cut its annual overspending.

But accumulated Greek debt has now grown to nearly 180 percent of gross domestic product (GDP) and is expected to rise to 190 percent by 2014. That is about three times the EU’s 60-percent limit and way beyond what the country can support.

And the International Monetary Fund (IMF), one of the country’s main creditors, has insisted that the figure be brought back to 120 percent of GDP.

This in line with an internal principle at the institution that it should not lend if there is no medium-term prospect of debt being contained to 1.2 times annual output.

This has brought forward the long-term issue of how to get Greece out of its debt trap and who should carry the cost.

European Union leaders and the European Central Bank (ECB) have said they cannot take losses on loans to Greece like those booked by private creditors in March.

“For once, it would seem, Greece can take none of the blame,” said Carsten Brzeski, an analyst at ING bank.

The Greek government, led by Prime Minister Antonis Samaras pushed through a fresh wave of deeply unpopular cuts through parliament earlier this month.

“Greece did what it had to do, and what it had pledged to do,” he wrote in a statement last Wednesday just after the finance ministers and IMF had failed to agree on the debt and so had not released the urgently needed funds.

On Sunday, French Finance Minister Pierre Moscovici told French BFM Television: “I think that in effect we are very close to a solution.”

He provided few details about how a deal could be reached, but said it could involve a combination of cuts in interest paid to lenders and profits made by central banks on Greek debt.

As well as the eurozone finance ministers, also in attendance will be IMF chief Christine Lagarde and Mario Draghi, president of the ECB.

The IMF and the ECB, with the European Union, make up the troika of creditors which have insisted on Greece adopting the controversial austerity plan.

They have decided to give Greece an extra two years, until 2016, to balance its books. But that means Greece’s creditors would have to find another €32.6 billion to cover the cost of the two-year respite.

With regard to the debt, Lagarde wants Greece to get this down to 120 percent of GDP by 2020. The head of the Eurogroup Jean-Claude Juncker favours a deadline of 2022.

The simplest solution would be for the creditors to agree to write off some of the Greek debt, and a “haircut” was raised as a possiblity in German press reports Sunday.

- © AFP, 2012

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