Bloomberg News

Euro Finance Chiefs Set to Defer Decision on Greek Aid Package

February 09, 2012

(See EXT4 for more on Europe’s debt crisis)

Feb. 9 (Bloomberg) -- European finance chiefs are set to defer endorsing a decision on a 130 billion-euro ($173 billion) rescue for Greece, saying they still need to examine the austerity deal struck by Greek leaders today.

“I don’t think we will have a definitive and final decision tonight,” Luxembourg Finance Minister Jean-Claude Juncker, chairman of the group of euro-area finance chiefs, said as he arrived for an emergency meeting of the group in Brussels. “We have to discuss several elements of the proposals to be submitted to us.”

European stocks rose for the first time in four days and the euro neared a two-month high against the dollar as the pact struck in Athens after all-night talks spurred optimism over enactment of the financial lifeline and debt-swap agreement needed for Greece to dodge default and economic collapse.

“There is clearly some very encouraging news coming out of Athens,” International Monetary Fund chief Christine Lagarde told reporters in Brussels today before the meeting. “It’s positive.”

Separately, bondholders met in Paris to discuss the terms of a debt swap that will entail losses of about 70 percent on their Greek bonds.

Resolution of the aid talks, which have dragged on since July, would allow Greece to make a 14.5 billion-euro bond payment on March 20 and contain the threat that speculators will target debt-addled nations including Italy and Portugal.

“The euro zone needs to be stabilized,” Irish Finance Minister Michael Noonan said.

‘General Agreement’

Investor attention switched to this evening’s Brussels meeting of finance ministers after starting the day focused on Athens as a week of talks stalled over 300 million euros of pension cuts. Discussions were later resolved with Prime Minister Lucas Papademos declaring a “general agreement.” He didn’t disclose details.

Seeking to reduce Greece’s debt to 120 percent of gross domestic product from 160 percent last year, Papademos and party chiefs agreed to extend budget cuts this year by 1.5 percent of GDP. Measures range from a 20 percent reduction in the minimum wage to lower pension payments and immediate job cuts for as many as 15,000 state workers.

Bondholders meeting in Paris discussed accepting an average coupon of as low as 3.6 percent on new 30-year bonds in the proposed debt swap. An agreement would slice 100 billion euros off more than 200 billion euros of privately-held debt and a formal offer must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due.

Creditors’ Deal

“We have also a deal with the private creditors,” Greek Finance Minister Evangelos Venizelos said. “We need now the political endorsement of the eurogroup for the final step.”

In Frankfurt, European Central Bank President Mario Draghi indicated the ECB won’t provide additional debt relief by selling its own Greek bonds to Europe’s temporary bailout fund at a loss. Doing so would amount to “monetary financing” of governments, he said.

The price Greece pays for outside support may be a deeper recession as its economy contracts faster than originally estimated. Unemployment climbed in November to 20.9 percent. That backdrop has led politicians to fret about losing voter support ahead of elections that may come as soon as April. Striking workers this week derided the conditions demanded for outside aid as “blackmail.”

Regional leaders including German Chancellor Angela Merkel expressed exasperation with Greece’s inability to meet past commitments or complete the latest round of negotiations.

Spreading Crisis

It’s now more than two years since Greece sparked a regional crisis by revising its budget math. Failure to contain it led to Portugal and Ireland requiring bailouts and has propelled the euro-area economy toward its second recession in three years and forced the ECB to issue emergency loans to keep banks from failing.

Signs have nevertheless grown that the crisis may be easing with Bloomberg indexes of Europe’s banks and financial conditions rising to the highest since August and bond yields from Italy to Spain falling. Italian Prime Minister Mario Monti was today praised in Washington by President Barack Obama for “taking impressive steps” after pushing through 20 billion euros in fiscal cuts and reducing regulations.

A Greek deal would allow Europe’s leaders to begin talks on whether to increase a planned limit of 500 billion euros on overall rescue lending that will take effect in July when a permanent rescue fund comes on line aside the temporary European Financial Stability Facility.

Increasing the so-called firewall has been identified by foreign governments as a pre-requisite for more money for the International Monetary Fund, which wants a $500 billion fillip to insulate the global economy from Europe’s travails. Mexican Finance Minister Jose Antonio Meade said yesterday the Group of 20 nations is unlikely to agree on extra cash for the lender when finance chiefs meet in two weeks.

--With assistance from Mark Deen, Rainer Buergin, Svenja O’Donnell, Angeline Benoit, Josiane Kremer, Jurjen van de Pol and Fabio Benedetti-Valentini in Brussels. Editor: James Hertling, Patrick Henry

To contact the reporters on this story: Simon Kennedy in Brussels at skennedy4@bloomberg.net; Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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