No Final Decision on Greece Next Week, Slower Austerity Sssumed

09 Nov 2012

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International Monetary Fund

(Reuters) - - Euro zone finance ministers are unlikely to release a new tranche of loans to Greece on Monday 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.

Euro zone 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.

Even though Greece passed a structural reform package in parliament on Wednesday and is to vote through an austerity budget for 2013 on Sunday, the ministers are not in a position to make a final decision.

"There is a very, very high ... probability of a second round of discussions to finalise everything," a senior EU official said.

The ministers will analyse all the reform commitments Greece will have made by then via parliamentary votes, to judge whether an austerity programme promised in exchange for the loans was back on track, reports Reuters..

Key to a final agreement is an analysis of how to make Greek debt, which is forecast to reach almost 190 percent of GDP next year, sustainable again after the country's spendthrift ways started the euro zone sovereign debt crisis in 2010.

International lenders -- the International Monetary Fund, the European Commission and the European Central Bank, called the troika -- cannot yet agree on the way to do that.

Estimates of the debt level by 2020 differ by 10-20 percentage points, officials have told Reuters.

Even if the analysis were ready for Monday, it would still need to be sent to national parliaments, notably Germany, which would then give their go-ahead to governments to approve the disbursement of the next, 31.5 billion euro tranche for Greece -- money it needs desperately to pay off loans and shore up its banks.

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 percent 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.

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