Greek debt talks resolved, but EU-IMF hold off on bailout

Feb 9, 2012, 17:20 GMT

Brussels - International lenders appeared reluctant on Thursday to sign off on a new bailout package for Greece, indicating they first wanted to scrutinize the debt write-off deal and austerity commitments that Athens was offering in return.

Just hours before eurozone finance ministers met in Brussels, Greek Prime Minister Lucas Papademos announced a deal on new budget measures demanded by the so-called troika of the European Union, the International Monetary Fund (IMF) and the European Central Bank (ECB).

Arriving in the Belgian capital to meet his peers, Greek Finance Minister Evangelos Venizelos said that a parallel bond swap agreement that would see private creditors forego 100 billion euros (133 billion dollars) in Greek debt holdings had also been secured.

'We now need the political endorsement of the Eurogroup (panel of eurozone finance ministers) for the final step,' he told reporters.

Both deals were a prerequisite for the EU and the IMF to release the 130 billion euros that Greece needs by next month to stave off default. The bailout must be signed off before the end of next week if it is to be ready in time, analysts say.

Despite the rush, Eurogroup President Jean-Claude Juncker warned that the special meeting he had called in Brussels would not be decisive.

'I don't think that we will have a final decision today, this is not a disaster, the debate has to be continued,' Juncker, who is also Luxembourg's prime minister, said before talks started around 6 pm (1700 GMT).

'There will be no results today,' German Finance Minister Wolfgang Schaeuble echoed.

In the meeting, Germany, the Netherlands and Finland 'grilled' Venizelos about the content of the deals reached, asking for written assurances on the deficit-trimming and economic reforms that have been pledged, an official who was in the room said.

Overnight, Greek party leaders had balked at the troika's demands for 300 million euros in cuts to state and private pensions. It was not immediately clear how the issue was resolved.

'It is now up to the Greek government and parliament to convince its European partners through strong commitment and concrete action in terms of ensuring fiscal consolidation and structural reform,' EU Economy Commissioner Olli Rehn said.

IMF chief Christine Lagarde confirmed that there were 'some very encouraging news coming out of Athens,' but added that 'there are still things to do.'

Austrian Finance Minister Maria Fekter said the IMF needed to calculate whether the deals struck in Athens would be enough to bring Greece's debt down to 120 per cent of gross domestic product by 2020, from a projected peak of 187 per cent next year.

George Papandreou of the Socialist Pasok party, Conservative leader Antonis Samaras and right-wing leader Giorgos Karatzaferis were reported to have agreed on other significant measures, including cuts in the minimum wage and public sector pay freezes and layoffs.

But since coming under EU-IMF tutelage in 2010, Greece has consistently failed to deliver on economic reform commitments and deficit-trimming targets, and there is uncertainty on whether a new government after elections in April would stick to the troika terms.

Speaking in Frankfurt, ECB President Mario Draghi said there was 'no plan B' for Greece, and expressed confidence that a solution would be found for the country's debt crisis.

'I'm quite confident that all these pieces will fall into place,' Draghi said.

Athens was granted an initial 110-billion-euro bailout from the EU and the IMF in 2010. The sum had been meant to cover its needs until mid-2013.

But Greece has since ran out of money and now needs a second rescue package in order to meet a 14.5-billion-euro bond repayment on March 20.

In October, the EU and the IMF calculated that Athens would require no more than 130 billion euros, but the figure is now thought to be insufficient due to the country's worsened economic outlook.

Draghi refused to comment on reports that the ECB might help plug the funding shortfall by foregoing profits on its Greek bond holdings - a concession thought to be worth about 11 billion euros.

Greece's two largest private and public sector unions have reacted to the announcement of more austerity measures by calling a 48-hour-strike starting on Friday.