Athens.- Euro zone governments and the International Monetary Fund (IMF) are making headway in settling a row over how to make Greece’s debt manageable, Eurogroup President Jean-Claude Juncker said on Saturday.
“I expect us to go the rest of the distance with the IMF,” Juncker told Reuters on the sidelines of an event in north-western Germany.
“We are working intensively on a compromise with the IMF on Greece and are making progress,” he said, adding it remained to be seen how much the differences had been narrowed by Tuesday’s meeting of euro zone finance ministers and the IMF.
The dispute is holding up the release of 31 billion euros ($39.39 billion) in emergency loans needed to keep Greece afloat.
Greece’s international lenders agreed on Monday to give Athens two more years to make the cuts demanded of it but the euro zone and IMF clashed over a longer-term target to shrink the country’s debt, reigniting fears ofbankruptcy.
IMF officials have argued that some writedown of Greek debt for euro zone governments is necessary to make Greece solvent but Germany, the biggest contributor to the bloc’s bailout funds, rejects the idea of taking a loss on its Greek debt holdings, arguing it would be illegal.
Several leading German economists called for a “haircut” for Greece in an article to be published in Welt am Sonntag.
“A haircut for Greece is unavoidable,” said Clemens Fuest, designated head of the ZEW economic think tank. “The question is no longer whether but when this step will come.”
Peter Bofinger, on the German government’s panel of economic advisers, said there was no alternative. “Without such a move, the country won’t get back on its feet,” he told the paper.
The IMF also disagrees with an idea from euro zone finance ministers to give Greece until 2022, rather than 2020, to lower its debt to gross domestic product ratio to 120 percent.
Juncker also took aim at Austria, Germany and the southern German state of Bavaria on Saturday for suggesting that a Greek exit from the euro zone was looming.
“Threats in the Austrian, German or Bavarian language that Greece will soon leave the euro zone do not do Greece any good,” he said in his speech. “We must show solidarity with Greece and watch our words.”
Some politicians from Chancellor Angela Merkel’s coalition partners, the Free Democrats (FDP) and Bavarian Christian Social Union (CSU), have again sharpened their rhetoric against Greece as fears grow about a new flare-up of the euro zone debt crisis.
On Saturday Deutsche Bank (DBKGn.DE) co-chief Juergen Fitschen warned at a conference that “we are still in the middle of the crisis, we are not through it yet.”
Merkel’s opposition Social Democrat (SPD) challenger in next year’s election, Peer Steinbrueck, said at the same conference when markets realized that announcements made by European Union leaders in the summer would not be implemented “the carousel will start turning again.”
However, Juncker said the European Central Bank had helped to calm euro zone nerves with its pledge to buy up debt from states such as Spain and Italy and their lower borrowing costs.
An agreement among Greece’s international creditors on reducing its large debt pile should be “rooted in reality and not in wishful thinking,” the head of the International Monetary Fund said ahead of a tense meeting with European leaders.
Cutting short a visit to Asia to attend a Eurogroup meeting on Tuesday in Brussels, Christine Lagarde, the IMF’s managing director, told Reuters it was important that an agreement provide a lasting solution to Greece’s debt to avoid prolonged uncertainty and further damage to the Greek economy.
“I am always trying to be constructive but I am driven by two objectives,” she said in an interview, “to build and approve a program for Greece that is solid, that is convincing today, that will be sustainable tomorrow, that is rooted in reality and not in wishful thinking.
“The second objective is to maintain the integrity, credibility and quality of advice that we are giving, not for the Fund itself, which obviously is a concern of mine, but to lend that to the Europeans because that is what they are interested in,” she said late on Saturday.
Christine Lagarde declined to predict the outcome of a meeting of euro-area finance ministers on reducing Greece’s debt even as officials from Germany and Italy say an agreement will be reached next week.
“It’s not over until the fat lady sings, as they say,” Lagarde told reporters in Manila when asked if an agreement can be achieved at the Nov. 20 meeting. “I would not say anything else.”
The approval of new aid –- likely to comprise three instalments “bundled” into a 44-billion-euro loan rather than the 31.5 billion euros originally anticipated –- remains the top priority for Samaras. But sources indicated that a final decision on new funding is unlikely to be taken until the end of this month due to an ongoing dispute between the International Monetary Fund and Germany regarding the funding gap created by a two-year extension granted to Greece to achieve fiscal adjustment targets and over how the country’s huge debt can be made sustainable.
Prime Minister Antonis Samaras on Saturday chaired a “mini” cabinet meeting at his offices to prepare for next Tuesday’s Eurogroup meeting, at which Greeks hopes for a final decision on the disbursement of financial aid and an overall solution to its debt problems for the next two years. The meeting was attended by the ministers of finance, development, education, administrative reform, tourism, health and labour.
The agenda for the meeting covered all details that must be dealt with immediately under Greece’s commitments to the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) troika of Greece’s lenders, including small changes to aspects of the omnibus bill outlining austerity cuts and structural reforms passed by Parliament last week, in order to further clarify points on which the troika has doubts and objections.
Also discussed were a number of joint ministerial decrees that are to be tabled in the next few days for a series of issues. On Monday, the General Secretariat of the Government will table a legislative act including all these changes, so that there are no glitches in the talks with Eurozone finance ministers on Tuesday.
Briefing the meeting, Labour Minister Yiannis Vroutsis confirmed that the labour ministry was full prepared to immedately implement the measures agreed and that the Greek side fully complied with its commitments.
“We are 101 percent ready,” he said, while AMNA sources said that circulars on implementing the new labour and social insurance measures will be ready for release at the start of next week. The circular on social insurance issues may possibly be issued on Monday and will include details on the operation of the Single Payments Authority and equivalent measures that will ‘counterbalance’ the cuts not made to disability pensions excluded from the measures.