Wednesday, November 21, 2012

Greek Debt Stalemate Centers on Deadlines

The failure to reach an agreement for the second week in a row highlighted the depth of differences among officials on how to find the money to keep the Greek economy afloat to contain contagion in the euro zone even as the country’s debt prospects worsen.

The German finance minister, Wolfgang Schäuble, said after nearly 12 hours of talks that some of “the questions are so complicated, we didn’t find a conclusive solution.” Finance ministers will meet again Monday to resume the discussions, he added.

Mr. Schäuble also noted that European leaders could take up the discussions during a two-day summit meeting in Brussels that is to begin Thursday. As part of that effort, the spokesman for the Greek government said Prime Minister Antonis Samaras would hold talks Thursday with Jean-Claude Juncker, chairman of the euro zone finance ministers’ group, known as the Eurogroup, Reuters reported.

“Greece has done what it had to and what it had committed to doing,” Mr. Samaras said in a statement. “Our partners, along with the I.M.F., also must do what they have undertaken.”

While there is little immediate threat that creditors will deny further aid to the government in Athens, finding a formula to turn the spigot back on has proved intensely difficult, particularly for Germany, where Chancellor Angela Merkel is seeking to avoid making new financing commitments to the most vulnerable euro area countries, like Greece, ahead of her re-election campaign next year.

That has left the leadership of the euro zone jawboning at a seemingly endless series of late-night meetings.

Greece is seeking to unlock a €31.5 billion, or $40.3 billion, installment of loans from an international bailout program. If ministers do reach a deal, Greece is likely to get a larger amount, about €44 billion, because two additional installments are due by the end of the year under the program.

The current program, worth a total of €130 billion, has been frozen since June, when creditors determined that Greece was failing to meet the conditions of the bailout.

During closed-door discussions that began Tuesday evening, ministers and international officials also were at loggerheads over whether to give Greece two more years, to 2016, to reach a primary budget surplus, a concession requiring nearly €33 billion on top of existing bailouts.

Christine Lagarde, the managing director of the International Monetary Fund, insisted that financing Greece until 2016 would help it to the path of making its debt manageable by the end of the decade.

But a number of euro member states resisted that suggestion, insisting on limiting questions of how to finance Greece through 2014. Using a target date of 2014 would cost less, about €15 billion, but that would leave questions unresolved about the country’s financing.

In an effort to address the added costs, the ministers considered options like lowering interest rates on Greek debt, lengthening the deadlines for debt repayments, allowing Greece to buy back its bonds at a steep discount and asking the European Central Bank to return profits made on Greek bonds.

But many analysts agree that at some point, Greece’s official lenders will have to take politically unpalatable losses, or haircuts, on their holdings of Greek debt to keep the country in the euro area, even if other measures are taken to reduce the size of the state deficit and reform the economy.

Another critical challenge for the finance ministers, known as the Eurogroup, was smoothing over differences among the members of the so-called troika of lenders — the European Commission, the European Central Bank and the International Monetary Fund — over how quickly Greece should be obliged to bring its towering debt under control.

In a public disagreement last week at the previous Eurogroup meeting, Ms. Lagarde insisted that Greece cut its debt to the fund’s target of 120 percent of gross domestic product by 2020, while Mr. Juncker, chairman of the group, recommended giving Greece until 2022, a position shared by Germany.

Arriving at the meeting Tuesday, Ms. Lagarde emphasized the importance of the 2020 goal to her organization, which under its rules cannot continue lending unless Greece’s debt is deemed sustainable. Finding a solution was “our goal, our purpose and our mission,” she said.

The difference is a highly sensitive matter for Greece’s biggest creditors in the euro zone, and for Germany in particular.

The German leadership is wary of political repercussions from higher costs that would result from meeting the 2020 deadline. The Greek debt is now estimated at 175 percent of G.D.P., and the economy could shrink again next year.

“We are narrowing our positions,” Mr. Juncker said early Wednesday, referring to the gulf between him and Ms. Lagarde on Greece’s debt prospects.

“We are very close to a result,” and there was “no major stumbling block,” Mr. Juncker insisted.

Mr. Samaras, the Greek prime minister, who is struggling to hold together an increasingly fragile coalition, has said he hoped that a final push by Athens to tie up loose ends could help speed money for the two-year extension to the country’s fiscal adjustment period.