The eurozone will not release a new loan tranche to Greece today (12 November) despite the country's tough 2013 budget as there is no agreement yet on how to make its debt sustainable. But Athens is set to get two more years to cut debt, officials said.
Eurozone finance ministers, called the Eurogroup, meet on Monday in Brussels where the main topic of their discussions will be unfreezing lending to Greece, held up after Athens went way off track with promised reforms and fiscal consolidation.
The Greek parliament passed an austerity budget for 2013 late on Sunday and a structural reform package on Wednesday to meet conditions for the release of the next tranche of €31.5 billion of emergency loans from the euro zone.
But the ministers are not in a position to make a final decision yet.
"There is a very, very high … probability of a second round of discussions to finalise everything," a senior EU official said on Friday.
On Monday, the ministers will analyse all the reform commitments Greece has made to judge whether an austerity programme promised in exchange for the loans was back on track.
Key to a final agreement is an analysis of how to make Greek debt, forecast to reach almost 190% of GDP next year, sustainable again after the country's spendthrift ways started the euro zone sovereign debt crisis in 2010.
European Central Bank Executive Board Member Joerg Asmussen told Belgian daily De Tijd on Saturday Greece would fail to reduce its debt burden to a manageable level by 2020 with current policies, ending up with more than 140% of GDP rather than the 116.5% agreed in March.
International lenders – the International Monetary Fund, the ECB and the European Commission, called the troika – cannot yet agree on a single estimate for Greek debt in 2020 or on the best way to reduce it. Estimates between the institutions on the debt in 2020 differ by 10-20 percentage points, officials say.
Once there is an agreement on the debt analysis, it will be sent to national parliaments, notably in Germany, to get approval for the disbursement of the next aid tranche – money Athens needs to pay off loans and shore up its banks.
Two more years
One thing the lenders do agree on now is that Greece, which will see its sixth year of deep recession in 2013, needs at least two more years to reach a primary budget surplus that would put its debt on a downward path.
The extra time would allow the economy to start growing again, otherwise it would never produce enough for the country to repay its debt.
This surplus target was set in March at 4.5% of GDP in 2014 and while there is no final decision yet, officials say it is likely to be moved to 2016 because of delays with reforms and a deeper than expected recession.
"The troika has been producing all of its reports and fiscal analyses and adjustment paths on the basis of an additional two years to reach a primary surplus of 4.5% of GDP," the senior official said.
The extra time would mean the eurozone would have to provide extra financing for Greece, which officials have put at €30 billion. This is politically difficult in Germany, the Netherlands and Finland where public opinion is weary of bailouts.
Near-bankrupt Greece needs a comprehensive deal on an austerity package and reforms to unlock its next tranche of aid before it runs out of cash in mid-November. Greece's gross public debt is equivalent to 171% of its economic output, according to the International Monetary Fund.
Athens has been locked in talks with its European Union and IMF lenders on the austerity package for months, but a final agreement has been held up by the small Democratic Left party's refusal to back the new wage laws.
The austerity package contains spending cuts and tax measures worth €13.5 billion as well as a long list of structural reforms to kick-start Greece's failing economy.
Many of the country's 10 million people, driven to despair by five years of economic contraction, fear attempts to cut the deficit will only deepen the crisis; unemployment is running at 25% and many find living standards have fallen sharply.
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