Divisions between the European powers and the International Monetary Fund over the rescue plan for Greece spilled into the open late last night as they sought divergent targets for the effort to bring the country’s debt under control.
Luxembourg’s prime minister Jean-Claude Juncker said euro zone finance ministers want to push back the target for Greece to achieve a “sustainable” debt by two years to 2022 - but IMF managing director Christine Lagarde said the fund remains attached to the existing 2020 target.
“We clearly have different views,” Ms Lagarde told reporters. “What matters at the end of the day is the sustainability of the Greek debt so that that country can get back on its feet and re-access the private market in due course,” she said.
“What we regard as critical insofar as the IMF is concerned is that the Greek debt is sustainable. In our view the appropriate timetable is 120 per cent [of GDP] by 2020.”
She was speaking after Mr Juncker said euro zone ministers were looking to extend the deadline by two years. Ms Lagarde appeared to roll her eyes and shook her head when Mr Juncker reiterated that stance moments later.
Such differences have never been aired in public before and they raise questions over the ability of Greece’s sponsors to finally settle on a new plan for the country at an emergency meeting next Tuesday in Brussels.
European monetary affairs commissioner Olli Rehn said this morning that Greece was making "substantial progress". This was due to "the Greek government and Greek parliament, the Greek people, [because of] their commitment to deliver on Greece's obligations under the programme and to revamp the reform effort".
"All of this is not to deny that there have been difficulties and delays. Nor is it to minimise the challenges that lie ahead," he added. "But it is right and necessary to recognise how far Greece has come in terms of fiscal reforms, and in the most trying of circumstances for the Greek people."
Although Ms Lagarde said “all avenues” to cut the Greek debt remain under examination, Mr Juncker said he did not believe the authorities with proceed with an “official sector involvement” deal in which governments would bear losses on their holdings of Greek debt to aid the country.
In spite of two parliamentary votes to back a new €13.6 billion austerity drive, the ministers said last night they were not yet ready to send €31 billion in promised loans to Athens.
“In Europe, decisions are always made when the knife is, so to speak, at our throats, when the abyss is near,” Belgian minister Steven Vanackere told reporters as the talks began last night.
Amid warnings from the Greek government that it is running out of cash, the agreed €31 billion tranche is required to enable Greece refinance debt and recapitalise its crippled banking system.
However, powerful donor countries such as Germany are reluctant to proceed without clarity over the outlook for Greece's national debt.
Although a new update on the second Greek bailout from the EU-IMF troika suggests almost €33 billion will have to be added to the loan to make up for a two-year relaxation of its deficit targets, the report did not include a long-awaited debt-sustainability analysis.
This includes €15 billion in 2014 and a further €17.6 billion in 2015 and 2016 - money the euro zone powers are reluctant to grant to Greece.
“I’d like to see if Greece has fulfilled all its obligations and then I’d like to hear the troika report because it depends on the Greek government having found a solution with the troika, and I haven’t read anything on that on the wires,” said German minister Wolfgang Schäuble.
The lack of a debt sustainability analysis is crucial, given disagreements between troika members over the likely evolution of the Greek national debt.
European Central Bank executive board member Jörg Asmussen provided a flavour of the thinking when he said over the weekend that the current rescue programme for Greece will see it overshoot its target debt level of 120 per cent of national output by 2020 to reach 140 per cent of national output.
The hardliners in the euro group of ministers did not waver from their customary scepticism.
“We know that Greece has asked for a bit more time, but more time means more money. That’s an issue because where should that money come from?” Austrian minister Maria Fekter said.
“I can’t imagine that the other states, the ministers, want to go back to their taxpayers and that we will have to decide on new packages for Greece that cost even more in our parliaments. We have to be more creative.”
