Greek Premier Heads To Summit in Brussels

30.01.2012 09:26

WSJ: ATHENS—Greek Prime Minister Lucas Papademos headed for Brussels late Sunday to negotiate a new bailout for his country after weekend talks with private creditors over a planned debt restructuring neared a deal, and following a renewed commitment by political leaders in Athens to pursue fresh reforms.
In remarks following an almost three-hour meeting with the heads of the three parties that make up his coalition government on Sunday, Mr. Papademos said the country's negotiating position was greatly strengthened by the cross-party support.

A day earlier, Greece and its private sector creditors had said they were on the verge of a deal to write off €100 billion ($132 billion) of the country's debt, pending the outcome of separate talks on the new multibillion-euro bailout for Athens. Both sides said in statements over the weekend that they expect a deal to be completed this week.

The focus now shifts to a European summit on Monday in Brussels, where the Continent's leaders are set to discuss the terms of the debt restructuring and the new loan. Complicating those discussions are new demands by Germany for greater European oversight over Greece's budget affairs, and growing concerns that Greece's funding needs might be bigger than originally thought.

Over the weekend, it emerged that Germany was leading a push for tighter European control over Greece's budget and economic plans.
Frustrated with the slow pace of implementation of reforms, a German proposal was circulated last week among euro-zone finance ministry officials calling for Athens to cede some control over its budget decisions to Europe in return for a second bailout, one official said.

The official said any decision to place Greece's budget process under increased European control would "have to be taken consensually with Greece" and cited the German proposal as "one idea among many under discussion."

On Sunday, Greek Finance Minister Evangelos Venizelos pushed back against the proposal, saying Athens had already signed up to an appropriate level of oversight at a summit last October at which the outlines of a second bailout package were agreed. He insisted that "Greece alone has, not only the responsibility, but also the incentive to ensure the implementation of the program."

A spokesman for European Economics Commissioner Olli Rehn said the European Commission would "reinforce" its monitoring role on the ground, but said "executive tasks must remain the full responsibility of the Greek government."

At last October's summit, European leaders and the International Monetary Fund agreed to provide Greece with €130 billion in fresh financing to cover the country's cash needs through 2015. But the new loan was contingent on a debt write-down plan that would slash Greece's debt ratio to 120% of gross domestic product in 2020 from an unsustainable 160% currently.

Since then, the Greek economy has deteriorated further, and the budget deficit has widened to nearly 10% of GDP; those factors could put the projections in doubt. Euro-zone and IMF officials now say Greece may need an extra €15 billion.

Still, the mood on Saturday in Athens was upbeat. "We really are one step away from a final agreement" on the debt deal, Mr. Venizelos told reporters.

Throughout the day Saturday, Greece conducted parallel negotiations with the private creditors at the same time as it held talks with officials from the European Commission, the IMF and the European Central Bank—known as the troika—over the new loan program.

A person with direct knowledge of both sets of talks said a formal deal won't be announced until Athens agrees on new austerity measures with the troika. The key to clinching the debt talks appeared to come after bondholders indicated they would accept lower yields on new Greek debt that Greece will issue to replace its old bonds under the terms of the restructuring. According to a person close to the negotiations, the creditors agreed to an average yield of less than 4% over the 30-year maturity of the new bonds.

Without a fresh bailout, Greece won't be able to meet a €14.4 billion bond redemption maturing Mar. 20 and could become the first euro-zone member in the currency bloc's 11-year history to default.

That brings the deal in line with recent demands made by Greece's euro-zone partners.

"We are close to a finalization of a voluntary PSI," or private sector involvement, the Institute of International Finance, a Washington-based bank lobby representing the creditors, said in a statement on Saturday.

With European leaders set to meet Monday to take stock of the latest Greek developments, Mr. Papademos, who heads a three-party coalition government, met with party leaders Sunday to seek anew their commitment to the new loan terms.

Following the meeting, the prime minister warned Greeks that the country will need to take further steps to fix its public finances and overhaul its economy, but added that Greece's political leaders are united behind the effort.

"The negotiations are not easy. Despite the progress that has contributed to the stabilization of the economy, despite the significant changes and the great sacrifices of the citizens, missed goals and the delayed implementation of policies have led our partners to ask for further commitments and terms," he said.

"The political leaders and I find ourselves in absolute agreement over the need to continue the negotiations and the positions that we will support," he added.

Write to Alkman Granitsas