Pressure mounts for bigger haircuts on Greek debt
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — Greece is likely to receive an 8 billion euro ($10.9 billion) tranche of aid in early November, its international lenders said Tuesday, allowing it to avert a near-term default.
The clearance of the hurdle will put more focus on calls for private bondholders to bear larger writedowns on Greek government debt while European leaders also look to ring-fence the region’s banking system and other sovereigns from the crisis.
In a joint statement, the European Union, International Monetary Fund and the European Central Bank — known as the “troika” — said the fiscal 2011 deficit target “is no longer within reach,” due partly to a further decline in gross domestic product and also due to “slippages” in the government’s implementation of austerity measures.
Additional austerity measures announced by the government in recent weeks will help ensure it meets its fiscal targets in 2012, the troika said. Beyond next year, further measures will probably be needed to meet targets, it said.
The review must be approved by euro-zone finance ministers and the IMF’s executive board, with the tranche likely to be made available by early November, the troika said.
The euro EURUSD -0.39% remained lower versus the dollar, changing hands at $1.3575.
The aid was initially scheduled for release in October. Without the package, the government runs the danger of running out of cash by mid-November. The disbursement was held up after Greece failed to meet 2011 fiscal targets. The troika’s review team abruptly left Athens in September amid disagreements over Greece’s austerity efforts.
Athens announced earlier this month that its 2011 deficit was likely to equal around 8.5% of GDP, down from 10.5% in 2010 but well short of the 7.6% target that accompanied the €110 billion EU-IMF bailout approved last year.
Meanwhile, pressure appears to be growing on private bondholders to take writedowns on Greek debt exceeding the 21% haircut implied in the debt-swap plan that is part of the second Greek bailout approved by European leaders on July 21.
Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of finance ministers from the 17 euro-zone countries, was quoted late Monday telling Austrian television that a “brutal” haircut for Greek bond holders can’t be ruled out. But he said any revised measure can’t contribute to contagion elsewhere in the euro zone.
William L. Watts is a reporter for MarketWatch in Frankfurt.
