THE GREEK maths simply do not add up. Last year’s €110 billion EU-IMF bailout is by all accounts now not enough for the country to continue to pay its debts through 2012. And so the discussions at the meeting of European finance ministers over the last two days – when they could tear themselves away from the woes of International Monetary Fund chief Dominique Strauss-Kahn – were all about persuading Athens to sharply accelerate both its €50 billion privatisation programme and economic reform, as well as various euphemisms for debt default: “restructuring”, “rescheduling” and “reprofiling”.
Luxembourg’s Jean-Claude Juncker, chairman of the Eurogroup, left the meeting insisting that if Greece took its prescribed medicine, a “soft restructuring” of its debt could happen. “If Greece makes all these efforts, then we must see if it is possible to make a soft restructuring of Greek debt,” he said, although insisting: “I am strictly opposed to a major restructuring of Greek debt”.
In doing so he bowed to what has appeared be the inevitable and broke the default taboo among ministers. Germany’s Chancellor Angela Merkel had also been adamant against any default before 2013, although she conceded yesterday that some kind of voluntary agreement of creditors might be possible to ease Greek problems. However, whether such limited measures will provide sufficient relief to Greece is far from clear.
“Soft restructuring” and “reprofiling”, understood to mean broadly the same thing, are more palatable options because they do not involve more immediate cash or repudiating debt, but simply extending the loan period. If a “reprofiling” is done in co-ordination with bondholders, rather than being forced on them, it should not trigger what has been termed a “credit event” in the market.
The meeting also heard calls from the Dutch, among those unconvinced by Greece’s current efforts, for its privatisation programme to be taken over by a private agency, an inflammatory suggestion to bypass democratic accountability that would be likely to prove politically explosive and deeply counter-productive. The Greek issue should be decided at the EU’s June summit.
The Ecofin meeting’s other preoccupations – it also signed off on the permanent European Stability Mechanism, due to be established in 2013 – meant it could provide little comfort yet for Ireland. Although ministers signed off on the euro zone’s third bailout, Portugal’s €78 billion, there was no time for a discussion of the Irish interest rate beyond a brief case made by Minister for Finance Michael Noonan.
Portugal will enjoy a rate 0.8 of a percentage point below Ireland’s, and Mr Noonan – who warned that inflexibility on the issue could jeopardise Irish recovery – will also have reminded colleagues of the reality that the commission has already been advancing special loans to accession states at zero margins over the rates at which it borrows. The case for punitive, deterrent rates against bailout states makes no sense if they simply make repayment unaffordable.