EUROPEAN NEGOTIATORS have resolved to hold separate talks on the next €12 billion tranche of rescue aid for Greece from discussions on a second bailout pact for the country.
The development brings forward the likelihood of a deal this week to overcome a looming funding crunch next month while prolonging uncertainty over the country’s longer-term fiscal situation.
The prospect of a big funding gap emerging next year is now seen as inevitable in view of the country’s continued exclusion from private debt markets.
The manoeuvre to separate this issue from the country’s immediate needs means contentious questions around an expected initiative to seek a voluntary extension from creditors on the maturity on the country’s debt will not be resolved in the immediate term.
Such moves have stoked tension between euro zone countries and the European Central Bank (ECB), which says there is no distinction between the mooted “soft restructuring” of Greek debt and full-blown default.
While a senior European source said the ECB might have to “accommodate” itself to a push by EU leaders to follow through with such an initiative, credit rating agency Fitch warned yesterday that that would be akin to a Greek default.
“Incorporated into the ‘B+’ rating is Fitch’s expectation that substantial new money will be forthcoming for Greece from the EU and the IMF and that Greek sovereign bonds will not be subject to a ‘soft restructuring’ or ‘reprofiling’ that would trigger a ‘credit event’ and consequently a default rating from the agency,” it said.
Fitch also said the decision of EU leaders to seek private sector participation in bailouts when a permanent new rescue fund is set up in 2013 was undermining confidence in Greece.
“Investor sentiment towards Greek sovereign risk in the wake of this initiative has deteriorated to such an extent that Fitch now believes that it is highly unlikely that Greece will be able to regain market access during the remaining life of the IMF-EU programme (May 2013),” it said.
“Without renewed market access, new money from official creditors will be required to address the fiscal funding shortfalls that are set to reappear in 2012.
“In Fitch’s opinion, additional financial support for Greece would only be credible in providing a path to solvency if it were fully funded beyond the end of the current €110 billion programme in 2013, implying additional financial support.”
Although the country’s sponsors acknowledge a likely requirement for a new loan package, the decision to settle the immediate funding gap first reflects both the urgency in the present situation and likely political difficulties over additional aid in countries such as Germany, Finland and the Netherlands.
As talks continued yesterday between the Greek government and the EU-IMF “troika”, the European source expressed confidence that a deal was now in sight in which Athens would agree to quickly implement fiscal reforms still due under its existing programme.
Such an agreement has emerged as a prerequisite for the release of the next tranche of loans in view of the government’s failure to execute agreed policies on time.
Although the troika’s hard-line negotiating stance has fuelled resentment in Greek political circles, the country’s lenders in the euro zone are increasingly frustrated at its failure to implement key economic reforms and a disputed €50 billion privatisation programme.
This has fanned expectation that any new aid plan will come with strict conditionality, and strict external supervision over tax collection and the privatisation initiative.
Greek paper Kathimerini reported yesterday the troika was insisting its representatives have a say over decisions taken by a new independent privatisation agency, and that the troika would be able to block moves it disagreed with.
The paper also said the troika was demanding that no representatives of the government be involved in the agency.
