Published November 18, 2012
BERLIN – European Central Bank policymaker Joerg Asmussen said on Sunday the euro zone should agree next week on two years of funding for Greece and leave further help to be decided later, a view likely to irk the IMF, which wants a permanent solution.
"We should next week settle the financing for the years 2013 and 2014, but you have to be honest and say we do not really expect the country to have access to markets in 2015 and 2016; that means a follow-up programme would be necessary," Asmussen told German broadcaster ZDF.
A two-year deal would postpone a longer-term solution to the Greek debt crisis until after a September 2013 German general election, when it might be politically easier for Germany, the EU's paymaster, to take tough decisions.
The International Monetary Fund (IMF), however, is unlikely to welcome further delay.
Euro zone finance ministers and IMF Managing Director Christine Lagarde meet on Tuesday to try to agree on how to make Greece's debt manageable, an agreement that eluded them last week.
German Finance Minister Wolfgang Schaeuble said he was banking on a deal.
"We must find a common line. We have to find it on Tuesday. We are working intensively on this, and I think that we will manage it," Schaeuble told ARD television.
Lagarde told Reuters late on Saturday that she would push for a permanent solution to Greece's debts to avoid prolonged uncertainty and further damage to the Greek economy.
IMF officials have argued that some writedown of Greek debt held by euro zone governments is necessary to make Greece solvent, but Germany, the biggest contributor to the bloc's bailout funds, has repeatedly rejected the idea of taking a loss, or "haircut", on such holdings, saying it would be illegal.
"It is a legal matter," Schaeuble reiterated. "You can't guarantee credit and then take a haircut on the credit you have guaranteed, that is ruled out."
In an article in Monday's edition of Handelsblatt, Klaus Regling, head of the European Stability Mechanism (ESM) bailout fund, said euro zone states would only take a haircut on Greek debt in extremis.
"A public haircut is something totally extraordinary; it can only happen in exceptional circumstances," he said.
Among ideas under consideration to plug the funding gap are further reducing the interest rate and extending the maturity of euro zone loans to Greece, an interest-payment holiday and bringing forward loan tranches due at the end of the programme, according to euro zone sources.
Asmussen told ZDF the problem was that loans alone did not help as they raised the long-term debt.
"We must look for solutions which do not at the same time raise the debt level of the country. That could, for example, be buying back debt or reducing the interest on the outstanding credit," said Asmussen.
In an unusually public airing of disagreement during a news conference in Brussels on November 13, Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, said the target of reducing Greece's debt to 120 percent of gross domestic product by 2020 should be moved by two years to 2022.
Appearing surprised by Juncker's statement, Lagarde disagreed, insisting the target of 2020 should remain.
Under its standard procedures, the IMF cannot go on disbursing loans unless an adjustment programme is fully funded up to the end.
Euro zone ministers agreed on Monday to grant Greece an extra two years, until 2016, to meet its fiscal targets.
Asked if he agreed with Asmussen that Greece would need further aid, Schaeuble said a two-year extension would cost more. "If that is what Asmussen meant, he is right," said Schaeuble.
"The other problem is that by 2020 or 2022, Greece has to have reached a level in terms of its overall debt that enables it to get access again to the markets," said Schaeuble, adding he did not know how much the whole cost would be.
German Chancellor Angela Merkel has to make sure any easing of the conditions on Greece are palatable both to taxpayers before next year's election and her coalition partners.
Horst Seehofer, the head of Bavaria's Christian Social Union (CSU), which shares power with Merkel's conservatives, on Sunday struck a more conciliatory tone than previously.
"If the Greeks need more time, you can talk to the CSU about that," he told Bild am Sonntag newspaper.
"We must consider whether the alternative to a delay for the Greeks would not cost significantly more money, for example via a sharp rise in unemployment here," he said.
"The political art is to avoid a conflagration caused by a Greek bankruptcy without giving up efforts to tackle its debt," he said.
Several CSU members have taken a tougher line, openly talking about Greece's possible exit from the euro zone.
(Editing by Will Waterman)