World Bulletin / News Desk
Greece's international official lenders are at loggerheads over how to solve Athens' debt crisis, threatening more trouble for the euro.
Officials from Greece and the "troika" of European Union, European Central Bank and International Monetary Fund have told Reuters tensions have risen in recent weeks as negotiators wrangle over further budget cuts, with the IMF adamant that Greece reduce its debt further.
European officials say the IMF is also pushing them to restructure debts Athens owes them, an uncomfortable prospect for some of Europe's leaders who find the idea of their governments taking losses on the debt politically unpalatable.
"The problem is not between the IMF and Athens, it's between the IMF and the EU," one Greek official said, speaking on condition of anonymity. That view was confirmed by sources familiar with the thinking in Brussels and Washington.
Already facing an electoral backlash over bailouts and austerity budgets, and unsure what may be needed to defend the creaking public finances of heavyweight countries like Spain and Italy, EU leaders do not relish the idea of swallowing tens of billions of euros of losses on their official holdings of Greek government bonds.
To ease Greece's debt burden they fear the IMF will demand they write off some of the Greek debt they hold, although simply cutting the interest rates they charge could also help Athens.
"Europe wants more time to see what will happen with Spain and Italy, perhaps even after the German election in 2013," the Greek official said. "The IMF wants Europe to come up with a comprehensive solution to its problems now."
While EU leaders want to give Greece more time to meet its bailout goals, pushing back the goal post would require more aid for Greece, which has already received a 130 billion euro EU/IMF bailout, to tide Athens over.
The Fund, brought in for its expertise and reputation for imposing fiscal discipline, is keen to protect the hard-earned credibility it put on the line by contributing to the bailout package which set Greece a target of cutting its debt to under 120 percent of GDP by 2020.
The Fund, whose biggest shareholders are the United States and Japan, believes there is no way to avoid providing more money for Greece. A restructuring of Greek debt held by EU countries and institutions is among the options - although no formal proposal has yet been made.
IMF Managing Director Christine Lagarde broached the issue in a speech in Washington this week when she said Greek debt will have to be addressed.
"At the end of the game there needs to be debt restructuring. There is just no other way to make this work," said Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics in Washington
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German Finance Minister Wolfgang Schaeuble, whose own creditor government has been concerned at slippage in Greece's efforts to cut spending and raise taxes, gave a rare public hint of IMF concerns last week: "You should ask around about what the mood is like in the IMF," he told reporters in Berlin, "in having to deal constantly with these European problems and the repeated failure of the Europeans to meet agreed targets."
A restructuring - essentially requiring the ECB and European governments to take losses on nearly 200 billion euros in Greek debt they hold - could ease Greece's burden.
Private investors holding Greek debt took such a "haircut" this year, but with economic reforms being held up and a recession much deeper than expected, Greece seems likely to have to suffer more pain itself, or inflict more on its creditors, if it is to put its finances on a sustainable footing and resume market borrowing.
Out of Greece's 204 billion-euro official debt, 20 billion is owed to the IMF, which would be repaid in full in the event of an official-sector restructuring. The ECB has so far refused to face any losses on the bonds it has purchased over past years to prop up Greece's economy, estimated at about 50 billion euros.
With the Greek public pushing its government to resist more austerity, Finance Minister Yannis Stournaras's frustration at demands from lenders for deeper spending cuts prompted him to threaten resignation at one point last week, sources in Athens have said.
"It is now clear to the IMF that Greece will need more time or more money or both," a Troika official told Reuters.
Greece has asked for an extra two years to meet interim targets and European leaders appear to agree. Stournaras, the finance minister, told Reuters on Tuesday that such an extension would cost an additional 13-15 billion euros, which could be covered without further pain for European taxpayers.
Such a gap could be covered through the issuance of more short-term debt, by seeking lower interest rates from the ongoing bailout loans or a rollover of debt held by the ECB.
France has backed the two-year pause while a euro zone official said Germany is not opposed, provided Athens shows results soon.
Participants said tension was high during a meeting between officials from Greece and the troika last week to work out an additional 11.5 billion euros worth of savings measures. At one point Stournaras threatened to quit if Poul Thomsen, the Dane who runs the IMF's relations with Greece, pressed for more cuts.
"Nothing pleases Thomsen any more," another Greek official said. "Last time the troika was here we agreed 5 to 5.5 billion euros would come from salary and pension cuts. Now we have come up with 7.5 to 8 billion, and they are not enough."
If Greece deviates substantially from the terms of the rescue package, the Fund could face questions from other members about slipping controls or double standards for borrowers. Analysts said it might even consider pulling out of the Greek commitment, although such a move is unlikely.
"In theory, the IMF could withdraw from the deal if it is not satisfied the bailout fulfilled the ... criteria," said Ben May of Capital Economics. "In practice, it isn't so black and white and there is obviously potential for some kind of fudge."
Disputes within the rescue mission, however, also reflect deeper concerns about Greece's ability to cut its debt-to-GDP ratio from a current level around 160 percent and to recover the confidence of private investors willing to buy its bonds.
"There is potentially quite a big standoff," said May of Capital Economics. "I don't see the bailout lasting to the end of its duration and it could break down at any time.
"Lots of ... bankers in the chorus seem to indicate they would be quite happy for Greece to leave the euro."
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