BRUSSELS, Belgium — Finance ministers from the 17 euro countries agreed Friday to pay Greece its next batch of bailout loans, avoiding a potentially disastrous default, and moved closer to reducing the country’s massive debt burden.
But Greece’s debts are only one piece of Europe’s economic puzzle. The ministers meeting in Brussels were also struggling with two more complicated — and arguably more important — issues: boosting the firepower of the eurozone’s C440 billion ($607 billion) bailout fund to keep the crisis from spreading and forcing weak banks to increase their capital buffers.
A European Union official said ministers had made progress on strengthening the banks, and that a plan should be ready for a summit of EU leaders Sunday. He spoke on condition of anonymity to discuss confidential negotiations.
However, more work remained to be done on Greece and the bailout fund, the European Financial Stability Facility. Decisions on those two fronts were not expected until a second summit on Wednesday.
Greek Finance Minister Evangelos Venizelos welcomed the news that Athens would get the next C8 billion ($11 billion) installment, calling it a “positive step.” A day earlier, Greek lawmakers approved contentious austerity measures to get the money.
The loans, which still need the approval of the IMF, should be delivered during the first half of November. The money will keep Greece afloat for a little longer, but most economists agree that the country also needs a substantial cut to its debt load.
The findings of a report from Greece’s international debt inspectors piled more pressure on European finance chiefs to find a solution.
According to the report, Athens won’t be able to raise money on financial markets until 2021 unless it is allowed to write off more of its debt load. If that doesn’t happen, the country would need hundreds of billions of euros in new bailout loans.
A person familiar with the report said a tentative deal reached with banks in July to give Greece easier terms on its bonds would still leave it with a huge debt load of 152 per cent of economic output in 2020. The person spoke on condition of anonymity because the report is confidential.
Germany is pushing for a revision of the July deal to have Greece’s private creditors take bigger losses of 50 per cent to 60 per cent and reduce its debt to some 120 per cent of GDP by 2020.
The EU official said ministers had moved closer to Germany’s position on steeper cuts to Greece’s debt, but some financially weaker countries were still worried that could destabilize their markets and push their borrowing rates higher. “I wouldn’t say there’s a consensus but something close to that,” he said.