Euro zone leaders remain split over Greek debt ahead of key meeting

Telegraph staff and agencies 7:00AM GMT 20 Nov 2012

European leaders remained at odds over how to reduce Greece's growing debt mountain on Monday, ahead of a key meeting where they will try to finalise a deal to unlock the next tranche of the country's bail-out.

Greece approved laws on Monday to enforce budget targets and ensure privatisation proceeds are used to pay off debt, seeking to appease foreign lenders before the critical meeting of euro zone finance ministers on Tuesday. Photo: Reuters

"We are headed for an agreement, but a partial one," one European diplomat told AFP, suggesting that the finance ministers could require yet another meeting before the end of November to address outstanding issues.

Greece approved laws on Monday to enforce budget targets and ensure privatisation proceeds are used to pay off debt, seeking to appease foreign lenders before the critical meeting of euro zone finance ministers on Tuesday.

Athens said the decrees - in addition to an austerity package passed this month - completed its obligations to lenders before Tuesday's Euro group meeting, which it hopes will unlock more aid to stave off bankruptcy.

Yannis Stournaras, Greece's finance minister, said that Greece was "totally ready" for the meeting.

"There are no longer any pending issues on our side. Greece is totally ready," he said.

The country has been waiting since June for an instalment of aid worth €31.2bn from a EU-IMF loan it was initially granted early this year.

By the end of the year, Greece is also due to receive two more aid payments, worth between €5bn and €8.3bn, in exchange for which it has pledged to implement a series of unpopular austerity budget measures.

IMF head Christine Lagarde, who has clashed openly with Euro group head Jean-Claude Juncker on issues related to the Greek rescue plan, says the gathering is crucial to getting stricken Greece back on its feet and its debt mountain cut sharply to sustainable levels.

"It's a question of... making sure that we focus on the same objective, which is that... Greece can operate on a sustainable basis," Lagarde said last week.

Germany is reportedly pushing Greece to buy back half of its outstanding bonds from private investors at 25pc of their value as one way to reduce its unsustainable debt.

The voluntary proposal would leave private sector holders of Greek debt who have already seen most of their investments wiped out with just cents per euro, even while euro zone countries demand 100 percent of their principal back for official loans, according to Reuters.

A finance ministry spokeswoman said on Monday that a "haircut", or reduction, of the official debt level was "unimaginable".

"We are working intensively to find a common line," she said.

Greece's debt burden is nearly 180pc of GDP and expected to rise to 190pc by 2014. That is about three times the EU's 60-percent limit and way beyond what the country can support, meaning it has to be reduced one way or another.

Under the current bailout, private sector creditors also agreed to write-off €100bn of Greek debt, and it has been suggested that official creditors should now do the same - an option both the IMF and the European Central Bank (ECB) rule out.

The IMF cannot extend more aid to countries if their debt is classed as unsustainable. The ECB meanwhile cannot accept a write-down because doing so would mean in effect that it was giving a government direct financing, which its rules forbid.

Euro zone leaders remain split over Greek debt ahead of key meeting - Telegraph