Econintersect: The saga of Greece's decent into Hades continues as the gate keepers at the River Styx continue to disagree how to ferry the deceased to its final resting place. Will it be that Greece can avoid the eternal flames by simply drowning in the river?
The funding of the latest rescue package for Greece fell apart when creditors, led by Germany, refused to support additional money or further debt write-downs which the IMF has insisted are needed to prevent a rise in the debt to GDP ratio for Greece.
Last week the EU finance ministers agreed to a more lengthy workout schedule to arrive at a reduced deficit. The IMF has said that the supposedly temporary steps would create a less sustainable path for debt reduction. From Bloomberg:
The clash with the IMF was triggered by the ministers’ decision last week to grant Greece two extra years, to 2016, to cut the deficit to 2 percent of gross domestic product. While designed to address Greece’s growth problem, that gesture forced the country to take on extra debt to plug the higher deficits.
IMF bylaws bar it from lending to countries with “unsustainable” debts. In Greece’s case, sustainability was defined as debt equal to 120 percent of GDP by 2020. New estimates put Greece’s 2020 debt at 144 percent, potentially forcing the IMF to pull out.
“We made some good work and we’re closing the gap but we’re not quite there yet, so it’s progress but we have to do a bit more,” IMF Managing Director Christine Lagarde said.
Here is the statement issued by EuroGroup President Jean-Claude Juncker:
The Eurogroup welcomed the staff-level agreement reached between the Troika and the Greek authorities on updated programme conditionality, including a wide range of far
reaching measures in the areas of fiscal consolidation, structural reforms, privatisation and financial sector stabilisation.
The Eurogroup noted with satisfaction that all prior actions required ahead of this meeting have been met in a satisfactory manner. This reflects a wide ranging set of reforms, as well as the budget for 2013 and an ambitious medium term fiscal strategy for 2013-16. These efforts demonstrate the authorities' strong commitment to the adjustment programme.
The Eurogroup commended the considerable efforts made by the Greek authorities and citizens to reach this stage.
Against this background, the Eurogroup has had an extensive discussion and made progress in identifying a consistent package of credible initiatives aimed at making a further substantial contribution to the sustainability of Greek government debt.
The Eurogroup interrupted its meeting to allow for further technical work on some elements of this package. The Eurogroup will reconvene on Monday, 26 November.
- EU Stumbles on Greek Debt Reduction After Clash With IMF (James G. Neuger and Sandra Rastello, Bloomberg, 21 Novemebr 2012)
- Statement by the Eurogroup President, Jean-Claude Juncker (Official statement, 20 Novemeber 2012)