Greece vows to stay in the euro, never go bankrupt. Venizelos meets with top financial leaders at the IMF-World Bank meeting in Washington.
By Dina Kyriakidou
Washington, Sept 24 (Reuters) – Greek Finance Minister Evangelos Venizelos sought to reassure nervous markets and EU partners on Saturday by pledging his debt-ridden country would do whatever it takes to avoid default and stay in the euro zone. During an IMF meeting in Washington that was dominated by fears that Greek debt woes could trigger a wider European crisis, threatening banks and hurting the world economy, Venizelos dismissed any talk of bankruptcy.
“Greece will always be in the euro and Greece will never go bankrupt because this would be destructive for the euro zone and for many other countries beyond the euro zone,” he said in a statement after meeting his German, French and Italian and Belgian counterparts.
The European Union and IMF handed Greece a 110 billion euro bailout to save it from bankruptcy last year in exchange for austerity measures and reforms, but markets remain unconvinced a debt mountain of over 160 percent of GDP is sustainable.
“Greece is determined to honor all its obligations. No Greek paper will ever go uncovered,” Venizelos told reporters.
Slow implementation of unpopular fiscal measures and reforms prompted the abrupt departure of EU, IMF and ECB inspectors, known as the troika, from Athens earlier this month, with a key sixth installment of the bailout loan at risk. Greece has said it has enough cash until next month.
Venizelos said the government was confident the troika would return as planned next week, given that Athens announced a new wave of unpopular austerity measures since they left, and that the 8 billion euro loan tranche will be approved.
Greek officials said much hinged on Venizelos’ meeting with IMF Managing Director Christine Lagarde on Sunday and that they hoped the next tranche would be approved by early next month.
“We should have confirmation of the sixth tranche of the loan at the Eurogroup of October 2,” said an official who requested anonymity.
A second bailout deal of 109 billion euros, agreed in July when it was clear Greece would not be able to return to markets next year, has stumbled on banks’ reluctance to participate and European Union members asking for collateral in exchange for providing cash.
Venizelos will also meet on Sunday with Charles Dallara, the head of the Institute of International Finance, and Deutsche Bank CEO Josef Ackermann, who serves as chairman of the global bank lobby group, which has taken a lead role in talks on private sector participation in a Greek bailout.
Greek officials said they hope the second Greek bailout would be ready by early November. Negotiations with banks on taking a haircut on Greek paper have yet to conclude, and euro zone parliaments still need to approve the deal.
“Greeks know these are critical times, that the sacrifices, the injustices and pressures are the price we pay for mistakes of the past, mostly the responsibility of governments and politicians,” Venizelos said.
“What we have done in the past few weeks has sent a strong international message.”
A DEEPER “HAIRCUT”
Germany and several other rich countries are pushing for a fundamental overhaul of the way the eurozone has been fighting its debt crisis that foresees bigger losses for Greece’s private creditors and a more powerful bailout fund, according to European officials.
Concerns about Greece’s ability to repay its massive debt — just as the currency union crisis threatens to engulf large economies like Italy and Spain — have spiked in recent weeks, sending markets around the world tumbling.
“Because of that, it is important that we find a lasting, convincing solution for Greece,” German Finance Minister Wolfgang Schaeuble told journalists Saturday.
Schaeuble, as the finance chief of the eurozone’s economic powerhouse, and his European counterparts found themselves under heavy pressure as they met their colleagues from around the world in Washington this week, amid fears that the currency union’s debt crisis could push the world economy into another recession.
For weeks, eurozone leaders have been insisting that they had charted their way out of the crisis at a summit in July, when they decided to give the region’s bailout fund new pre-emptive powers and reached a preliminary deal on a second massive rescue package for Greece.
But Schaeuble and other European officials indicated at the Washington get-together that behind the scenes there is a push for a fundamental change in strategy.
This new strategy foresees boosting the firepower of the eurozone’s rescue fund — the European Financial Stability Facility — through a complicated scheme that could allow it to tap loans from the European Central Bank or leverage its euro440 billion ($590 billion) lending capacity in some other way.
“Of course we will use the EFSF in the most efficient way possible,” Schaeuble said, when asked whether he supported the idea of leveraging the fund.
The German finance minister declined to explain what that would look like in practice, but said that there would be ways of getting around opposition from the German Bundesbank to using funding from the ECB, the central bank for the 17 nations that use the euro as a common currency
“There are other ways of creating a leverage effect than recourse to the ECB,” Schaeuble said.
Schaeuble also indicated that a preliminary deal for a voluntary contribution by the private sector as part of a second, euro109 billion bailout for Greece reached in July may no longer be sufficient, given the worsened economic situation recently discovered by international debt inspectors.
The July deal, which is still being negotiated with banks and investment funds, foresees a cut of 21 percent in the value of Greek government bonds — a haircut that most analysts say is way too small.
“What the involvement of the private sector (in a second bailout for Greece) will look like will be decided when we have the troika report,” Schaeuble said, referring to a review of Greece’s austerity efforts by representatives of the European Commission, the ECB and the IMF. He declined to comment on how much bigger the haircut for Greece’s creditors may have to be.
Germany, supported by Austria and the Netherlands, is now pushing for an “orderly default” by Greece, which would involve larger losses for Greece’s private creditors than foreseen in the July deal, said a European official.
A second official confirmed that a reopening of the July deal was supported by “the usual allies,” shorthand for other rich eurozone countries. Both officials were speaking on condition of anonymity because of the sensitivity of the issue.
The push does not yet amount to a clear plan, and the European Commission and the ECB are concerned that Germany may be overestimating the eurozone’s ability to contain the crisis, said the first official. “We don’t really have strong firewalls,” he said, adding that the crisis has already affected Italy and Spain.
Both IMF Managing Director Christine Lagarde and French Finance Minister Francois Baroin insisted at news conferences during the Washington meeting that the eurozone should stick to the July agreement — signaling further divisions over the best way forward.
Dubts that Greece will be able to repay its debts — which now amount to some 160 percent of gross domestic product — and effectively implement unpopular reforms, privatizations and spending cuts have grown in recent weeks, as the government warned that its economy was set to shrink 5.3 percent this year.
That will be followed by a further contraction in 2012, marking four years of sustained deep recession.