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Eurozone ready to sanction Greek loans

 

Ben Chu
Tuesday 20 November 2012 18:00 EST
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Eurozone finance ministers were last night edging towards approval of a €31.5bn (£25.4bn) tranche of lending to Greece, which the Athens government needs to avoid a default and a disastrous exit from the single currency.

Loans to Athens from the troika of the eurozone, the International Monetary Fund and the European Central Bank were suspended in June, when it was unclear whether Greece would elect a government that would deliver on its predecessors' reform promises.

"It is clear that Greece has delivered," said the chairman of the finance ministers' group, Jean-Claude Junker, yesterday ahead of the meeting, indicating that the tranche will be approved, allowing Athens to avoid defaulting on its borrowings and to recapitalise its tottering banks.

Earlier this month the coalition of Antonis Samaras pushed a further cuts package through parliament worth €9.4bn in order to put the country's deficit reduction programme back on target. Yet there was talk that the troika funds would be unlikely to be released before 5 December. And the International Monetary Fund has been pushing for further debt forgiveness for Athens, arguing that the agreed goal of reducing the country's national debt to GDP ratio to 120 per cent by the end of the decade is now unrealistic in view of the depression.

Eurozone ministers are reluctant to sanction more forgiveness, since this would require them to ask their parliaments for more money. A possible compromise might found in an agreement to reduce the interest rate on the Greek loans, an extension of the repayment terms or approval for a debt buyback by Athens.

Joerg Asmussen, a German representative on the board of the ECB, suggested at the weekend that the question of further Greek debt reduction should be parked until 2014.

The Greek economy is expected to shrink for the sixth successive year in 2013.

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