Greece: IMF and Germany grapple over terms

Date: Thursday 02 Feb 2012

Suddenly Greece’s deal with private creditors is only hours away. According to a Wall Street Journal (WSJ) report, people close to the negotiations say that only small differences remain so the agreement could be concluded “in hours”.

The main delay however is, according to the paper, “the rift between the IMF and Germany”. According to the Fund, cutting the €200bn in Greek debt simply won’t do the job of getting Athens’s debt down to 120% of gross domestic product by 2020. The IMF thinks it’s necessary for the “official sector”, such as the European Central Bank (ECB), to also swallow losses on its own Greek bond holdings.

However, Germany is pushing Greece to take matters into its own hands and force deeper cuts in its budget, rather than having European governments, especially its own, supply more loans.

Out of this so-called “rift” have come suggestions that the EU appoint a “budget commissioner” to oversee Greece’s fiscal policy along with the idea that the ECB should consider, if not taking “losses” on its own €40bn in Greek debt, then at least “foregoing” any profit.

According to the WSJ, other options under discussion include that Eurozone central banks tender all Greek debt in their portfolios. This is roughly €12bn and would account for approximately a €6bn reduction (assuming a 50% haircut). Euro area governments could also simply reduce the interest rate on loans made to Athens. Cutting Greek borrowing costs on this debt by 1% would save several billion through 2020.

WSJ says that Eurozone finance ministers could sign off on the deal between Greece and private investors as early as Monday in Brussels, although it will all depend on Athens making a credible commitment to play its own part, “something that can’t be taken for granted”.

JM

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