BRUSSELS, Belgium — Eurozone governments are expected to sign off on Monday a long-awaited rescue package for Greece, saving it from a potentially calamitous bankruptcy next month, according to senior officials.
But finance ministers meeting in Brussels still have a few last issues to wrangle over, such as tighter controls over Greece’s spending and further cuts to the country’s debt load.
Greece needs to secure the C130 billion ($170 billion) bailout quickly so it can move ahead with a related C100 billion ($130 billion) debt relief deal with private investors, which needs to be in place quickly if Athens is to avoid a disorderly default on a bond repayment on March 20.
“I am of the opinion that today we have to deliver, because we don’t have any more time,” Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said as he arrived in Brussels.
An uncontrolled bankruptcy would likely force Greece to leave the 17-country currency union and return to its old currency, the drachma, further shaking its already beaten economy and creating uncertainty across Europe.
While ministers heading into Monday’s meeting cautioned that some details still have to be worked out, they were optimistic that a deal could be reached.
“We now have all of the elements to achieve an agreement,” said French Finance Minister Francois Baroin. “Greece knows what it has to do, and we’ll watch over it continually. We also know what we have to do.”
Apart from the finance ministers of the 17 euro countries, the get-together will also be attended by the heads of Greece’s other creditors: the International Monetary Fund, the European Central Bank and representatives of private holders of Greek debt.
Greece’s Finance Minister Evangelos Venizelos, who arrived in Brussels Sunday night, said he hoped those creditors would hold up their end of the deal.
“Greece comes into today’s Eurogroup meeting having fulfilled all the requirements for the approval of the new program,” he said.
“For Greeks, this is a matter of national dignity and a national strategic choice and no other integrated and responsible choice can be opposed to it.”
Greek Prime Minister Lucas Papademos, who rushed to Brussels on Sunday night hoping to lend more weight to Greece’s promises, arrived at the meeting Monday.
The Greek parliament has faced down violent protests to approve the austerity measures demanded by the eurozone. Its main political leaders have committed in writing to uphold the bailout terms even after general elections in April.
Despite Athens’ efforts, however, several important elements of the deal remained unsolved, and some countries have indicated their patience with Greece was growing short. In recent days, the discontent has threatened to scuttle the new bailout.
“We’ve seen that Greece time and time again fails to satisfy the conditions that the international community makes. ... In the Netherlands, it really is an issue that you have to lend money to a country that for the upteenth time hasn’t held itself to its agreements,” said Jan Kees de Jager, the finance minister from the Netherlands, which has been especially hard on Greece. “So it’s indeed essential to me, and also the Dutch government, that we have control over the money that we’re going to lend.”
To that end, Greece is expected to be forced to set up a separate account that would ensure it services its debt. This escrow account would give legal priority to debt and interest payments over paying for government services. That would maintain pressure on Greece to stick to promised austerity and reform measures and spare the eurozone the risk of a destabilizing default.
In addition, Greece’s international creditors will station permanent representatives in Athens to monitor the country’s progress.
Eurozone finance ministry officials on Sunday night concluded that only funds from the bailout would be funneled through the account and that Greece won’t be required to pay in taxpayer money, German Finance Ministry spokeswoman Marianne Kothe said, citing the current state of the negotiations.
The escrow account nevertheless would be an unprecedented intrusion into a sovereign state’s fiscal affairs and could ultimately see Greece force to pay interest on its debt before paying salaries to teachers and doctors.
The second big outstanding issue is how to make sure the current efforts to save Greece can bring the country’s debts to a manageable level, estimated at around 120 per cent of annual economic output by 2020 — compared with about 160 per cent currently.
But a new report prepared by the European Commission, the ECB and the IMF concluded that the new bailout, spending cuts and a planned C100 billion debt relief from private investors would still leave Greece’s debt at almost 129 per cent of economic output by the end of the decade.
The eurozone is still discussing several ways to close this financing gap.
A Greek official said there appeared to be agreement on further reducing the interest rate on Greece’s first, C110 billion bailout as well as having national central banks in the eurozone, which also hold some Greek bonds, participate in the debt relief.
But the official, who spoke on condition of anonymity because the talks were ongoing, said there was still no final decision from the ECB on whether it would be willing to transfer profits from its Greek bond holdings back to Athens.
A fourth option for closing Greece’s funding gap would be to demand further losses from private bondholders like banks and other investment funds. A current plan foresees private creditors to swap their old Greek bonds for new ones with half the face value, lower interest rates and much longer repayment periods.
There is now a push for bondholders to also give up on an accrued interest payment of around C5.5 billion on their old bonds.
Another issue due to be discussed Monday is how much the IMF will contribute to the new rescue. The fund has provided one-third of the bailouts for Ireland and Portugal and Greece’s first rescue package.
“The indication is that the figure will be rather low,” a European Union official said, adding however that a final decision from the fund’s board is still outstanding. IMF Managing Director Christine Lagarde will be at the meeting Monday. The official was speaking on condition of anonymity because talks were not yet concluded.
The Greek government is expected to introduce in Parliament on Monday another two pieces of emergency legislation, including wage and pension cuts.
Some worry that more austerity could exacerbate Greece’s problems by putting a stranglehold on growth. Prime Ministers from 11 European countries — including the U.K., Italy and the Netherlands — wrote a letter Monday to EU President Herman van Rompuy and Commission President Jose Manuel Barroso calling for growth across the bloc.
“The crisis we are facing is also a crisis of growth,” the letter said. “It is now time to show leadership and take bold decisions which will deliver results that our people are demanding.”