Eurozone finance ministers and IMF head Managing Director Christine Lagarde are due to meet in Brussels on Tuesday, for a second time in a week, to try to agree on releasing Greece’s next aid tranche and Greek fiscal targets. The likely event of the Eurogroup unlocking the
EUR 31.5bn tranche should support positive stock market sentiment. After last week’s meeting Eurogoup chairman predicted a “definite decision” on Tuesday, adding ministers might have to consult once more by the end of November to formally sign off on the updated rescue package.
Key for the approval of the next aid tranche will be a compromise about how to reduce Greece’s debt to what IMF considers a “sustainable” level of 120% of GDP.
Namely, last week’s meeting failed to bring an agreement as Eurogroup and IMF clashed over softening Greece’s debt reduction target. The IMF target is for reduction of Greece’s debt to below 120% GDP by 2020, whereas Eurogroup wanted a two-year extension to the target date, to 2022. Germany again reiterated it rejects the idea of write-off of Greek debt held by public institutions, after private debt restructuring in March. The IMF, however, still favors public haircut, saying it is necessary to make Greece solvent. German
Finance Minister Wolfgang Schaeuble told reporters last week that the options for discussion include cutting rates on loans or giving Greece extra time. ECB Board Member Joerg Asmussen said on Sunday the eurozone should agree this week of funding for Greece for 2013 and 2014, and leave further help to be decided later. Greece will probably need another aid package for the period after 2014, he added. The two-year deal would mean Germany would be able to postpone any longer-term solution to the Greek debt crisis after the next year’s general election, thus giving Germany more political flexibility to take the decision on Greece’s future in eurozone. However, IMF’s Lagarde told Reuters on Saturday she would aim for a permanent solution to Greece’s debt and is against any further delay.