A decision about how to keep Greece solvent is coming to a head, and for those keeping tabs, here’s a quick primer on what to watch for in the next few days.
As early as Friday, the so-called “troika” of Greek creditors – the International Monetary Fund, the European Central Bank and the European Commission – will announce a deal with Greece to get its current €110bn programme back on track, since, at the moment, it’s believed to be missing budget targets for 2011.
As we’ve been reporting for some time, that deal is likely to include new austerity measures, a commitment to allow international assistance in tax collection and a formal launch of an agency to oversee a €50bn privatisation programme.
Then comes the much harder decision: how to ensure Greece stays solvent through next year. Everyone who’s examined the numbers has concluded there is no way Greece will be able to return to the financial markets in March, as the current €110bn plan had envisioned. That means someone else is going to have to pick up the tab.
Here, there has basically been a three-way standoff between the IMF, the ECB and a group of creditor countries led by Germany.
The IMF is forcing the issue because, according to its regulations, the fund cannot distribute any more cash as part of the current €110bn programme without assurance Greece can stay solvent through the next 12 months. Not great timing for Greece or the German-led group of countries, since the next payment is supposed to come at the end of the month.
Which means the troika must come up with a new programme, and fast. The general consensus is that an additional €60bn is needed to get Greece through 2013, most of which will come through new bail-out loans from the IMF and the EU. The new Greek privatisation programme could account for several billion as well.
The tricky part has always been whether private-sector bondholders should contribute to the €60bn. The German-led group says yes, since without some private debt restructuring, it will be hard to convince national legislatures in creditor countries to approve another round of bail-out loans backed by taxpayers.
But the ECB is against, insisting that any change in the bond repayment schedule won’t help all that much, and is likely to set off a chain reaction, where bondholders of other eurozone countries set off a round of panic in places such as Ireland, Portugal and, most dangerously, Spain, which up until now looked like it had moved out of the aim of the financial markets.
Who will blink first? No one really knows. There are some signs the ECB is open to a voluntary roll-over of debt, where banks holding Greek bonds simply agree to repurchase more bonds when their current holdings expire. But that is far short of the “soft-restructuring” being pushed by many in the German-led group, which would involve an extension of repayment schedules for Athens.
A recent report by Mujtaba Rahman, a European analyst with the Eurasia group, bets the ECB will back down. “The ECB has lost every important fight with the member states to date in the context of this crisis,” Rahman writes. “It is unlikely that this debate will be won by the bank.”
It’s the decision we at the Brussels Blog will be watching with most interest in the coming days as all sides position themselves ahead of a key June 20 meeting of EU finance ministers.