Eurogroup gives Greece more time to eliminate deficit

13 Nov 12
Eurozone finance ministers have given Greece more time to achieve a budget surplus, saying continued fiscal and structural reforms would put the country’s economy on a ‘sustainable growth path’.

By Nick Mann | 13 November 2012

Eurozone finance ministers have given Greece more time to achieve a budget surplus, saying continued fiscal and structural reforms would put the country’s economy on a ‘sustainable growth path’.

At a meeting in Brussels last night, the Eurogroup of ministers said that as Greece had made ‘significant progress’ in agreeing further austerity measures, it was ‘appropriate’ that its fiscal targets were revised.

The ‘wide range of robust and necessary measures’ agreed by Greece cover fiscal consolidation, structural reforms, privatisation, automatic correction mechanisms and financial sector stabilisation, the ministers noted. In particular, they welcomed the Greek Parliament's approval of a new package of spending cuts and further austerity measures in its 2013 budget last week.

A draft report prepared yesterday by the ‘troika’ of creditors – the European Central Bank, European Union and International Monetary Fund – suggested Greece should be given until 2016 to record a primary budget surplus of 4.5% of gross domestic product, and not 2014 as previously planned.

In a statement, the Eurogroup said it ‘concludes that the revised fiscal targets, as requested by the Greek government and supported by the troika, would be an appropriate adjustment for the further path of fiscal consolidation in view of recent economic developments’.

However, the IMF and Eurogroup disagreed over whether Greece should also be given longer to reduce its debt, which is forecast to reach 189% of GDP next year. Eurogroup president Jean-Claude Juncker said last night it should have until 2022 to reduce this to 120% of GDP, but IMF managing director Christine Lagarde said this should remain a target for 2020.

Lagarde explained: ‘What we regard as critical is the Greek debt be sustainable and in our view the appropriate timetable is 120% by 2022. We clearly have different views but what matters at the end of the day is the sustainability of the Greek debt so the country can be back on its feet and re-access the private markets in due course.’

The extension of the deficit elimination goal means Greece now faces a reported €32.6bn gap in its bailout funding. Closing this gap is expected to be on the agenda of an emergency meeting of the Eurogroup called for next Wednesday, alongside the question of Greece’s ‘debt sustainability’ and exactly what its future fiscal targets should be.

Juncker added that by then the Eurogroup expected to be able to agree to the next €31.5bn tranche of Greece’s bailout programme.

‘The Eurogroup expects that by that time, the necessary elements will be in place for member states to launch the relevant national procedures required for the approval of the next European Financial Stability Facility disbursement, subject to the troika's final positive assessment of all prior actions by the Greek authorities.’

This morning, Greece raised €4bn on the bond markets through the sale of short-term government debt towards the cost of a €5bn debt repayment due on Friday.

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