The group of 17 European finance ministers met Nov. 20 in Brussels to discuss the payment of further aid money to Greece. The group did not reach an agreement after a 12-hour negotiation marathon that went through the night.
The summit in Brussels was only supposed to rubberstamp the disbursement of $40 billion in aid money to Greece. Instead, the Eurogroup of finance ministers that form part of the 17 nations that share the euro common currency could not reach an agreement.
We are a whisker away from a deal.
- Pierre Moscovici, French finance minister
After 12 hours of extensive discussions the Eurogroup could not find a solution to technical problems and needs to reconvene on Nov. 26. This came as a surprise after finance ministers from creditor nations lauded Greece’s efforts to comply with austerity demands. In a recent vote in Parliament in November, Greek Prime Minister Antonis Samaras pushed through another round of budget cuts and tax hikes. He expressed discontent at the result of the negotiations.
This disappointing result is no immediate threat to Greek solvency, however. The next big repayment of debt is not due until the middle of December.
Cutting Debt at Heart of Disagreement
An internal paper seen by Reuters suggests that reducing Greece’s debt from roughly 170 percent of GDP to 120 percent in 2020 means official sector creditors such as other European countries, the European Central Bank, or the IMF will have to take losses on their debt holdings.
“It would cost money, it would be a fatal signal to Ireland, Portugal and possibly Spain, as they would immediately ask why they should accept difficult conditions and push through difficult measures … and it would have consequences under budget law,” Norbert Barthle, budget spokesman for Merkel’s Christian Democrats told Reuters.
The finance ministers discussed a couple of options, but failed to combine these into a conclusive agreement. “We are a whisker away from a deal. I am very confident we will get there on Monday,” French Finance Minister Pierre Moscovici told Europe 1 radio.
One of the alternatives includes reducing the rate that Greece pays on official sector debt. Other European states currently charge Greece a rate of 1.7 percent on the debt that comprises the majority of Greek borrowing. Another sees Greek buying back remaining bonds issued to the private sector with public sector money at cheap prices.
Citigroup European economist Jürgen Michels thinks that one measure alone will not be enough, “A combination of many of these options—excluding a debt write-off—will probably be the final outcome of the negotiations.”
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