Eurozone 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 (17 November).
"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 eurozone finance ministers and the IMF.
The dispute is holding up the release of €31 billion in emergency loans needed to keep Greece afloat.
Greece's international lenders agreed on Monday (12 November) to give Athens two more years to make the cuts demanded of it, leaving a funding hole of €32.6 billion in the country's finances up to 2016.
A further meeting of the IMF and eurozone finance ministers on Tuesday (20 November) is expected to decide on how to fill that gap.
But senior eurozone sources said the 17-nation currency area would only attempt to close Greece's financing gap to 2014, instead of finding a solution up to 2020 as sought by the IMF.
"We will concentrate on 2013 and 2014. The sum is about €13.5 billion," said the source involved in negotiations, speaking on condition of anonymity.
IMF officials have argued that some writedown of Greek debt for eurozone 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.
Olli Rehn, the EU's economic and monetary affairs commissioner, said last week that "the solution will be a combination of various elements, one is not enough."
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 advisors, 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 eurozone 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 eurozone was looming.
"Threats in the Austrian, German or Bavarian language that Greece will soon leave the eurozone 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 eurozone debt crisis.
On Saturday Deutsche Bank co-chief Jürgen 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 Steinbrück, said at the same conference when markets realised 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 eurozone nerves with its pledge to buy up debt from states such as Spain and Italy and their lower borrowing costs.
Greece's international lenders agreed on 12 November to give the country two more years to meet its debt-reduction targets, leaving a funding hole of €32.6 billion in the country's finances up to 2016.
A further meeting on 20 November will decide on how to fill that gap. Officials said more negotiations could be required the week after that to nail down a new deal.
EU lending to Greece was held up in June after Athens went way off track with reforms and fiscal consolidation that it promised in exchange for a eurozone-funded bailout.
- 20 Nov. 2012: EU finance ministers meet over Greece's debt reduction programme.