European governments moved toward a second rescue of Greece, calculating that the 130 billion-euro ($172 billion) cost of a fresh bailout is a price worth paying to prevent a default that could shatter the euro area.
Finance ministers are weighing the terms of new loans to Greece and a possible contribution by central banks at a meeting today in Brussels. They also aim to start a bond exchange with private investors meant to stave off a Greek bankruptcy next month.
Bondholders’ response to the swap, Greece’s ability to prolong two years of austerity and a gantlet of parliamentary approvals in northern European countries gripped by an anti- bailout mindset loom as risks to the latest salvage operation.
“We still have a bit of work to do,” German Finance Minister Wolfgang Schaeuble told reporters as he arrived for the meeting of euro-area finance chiefs. “We’ve set out to wrap up the decision on a new aid program for Greece. I’m confident.”
No time was set for a press conference after the meeting, under way since 3:30 p.m.
Euro leaders point to declining bond yields in Italy and Spain as evidence that investors are less fearful that the turmoil in Greece, representing 2.4 percent of the continental economy, will spill across borders.
The 17-nation euro gained as much as 1 percent to $1.3277 today, bringing its climb against the dollar this year to more than 2 percent. European stocks rose, with the Stoxx Europe 600 Index (SXXP) extending a six-month high.
Summit-Level Pledge
Tonight’s meeting is two years and nine days after Greece’s fiscal woes burst upon the euro zone, prompting a summit-level pledge of “determined and coordinated action, if needed” to safeguard the currency.
Since then, creditor countries and Greece have sought leverage over each other. Rich countries led by Germany have tied aid to ever-stricter conditions, while Greece counts on Europe’s fear that letting it go bust would destabilize, and possibly wreck, the 13-year-old monetary union.
“It is the intention of nobody to have Greece outside the euro area,” Luxembourg Prime Minister Jean-Claude Juncker said as he arrived to chair the meeting. The size of the public aid is “still open.”
Finance ministers will try to make Greece’s aid numbers add up, possibly offering lower interest rates or longer loan maturities to bring Greek debt down to a target of 120 percent of gross domestic product in 2020, two officials said last week.
IMF Estimates
Unchanged terms would leave the debt at 129 percent of GDP by 2020, too high to be “sustainable,” according to European and International Monetary Fund estimates that were shown to the ministers on a Feb. 15 conference call, two officials said.
“We are here today ready to conclude this long process,” Greek Finance Minister Evangelos Venizelos said. “I am optimistic, but in any case we need a clear political approval.”
Up for debate at the meeting, attended by European Central Bank President Mario Draghi, is the role of the politically independent ECB and its national branches in the bailout that follows 110 billion euros awarded in May 2010.
The ECB could funnel profits from crisis-driven purchases of Greek bonds -- estimated at 13 billion euros by
Citigroup -- back to national governments and on into the Greek package. National central banks, in turn, could join private investors in taking losses on Greek bonds in their longer-term portfolios.
‘More Tax Money’
Central-bank contributions and bigger-than-planned writeoffs by private bondholders would be two ways of drumming up the extra funds, Austrian Finance Minister Maria Fekter said.
“Governments can’t make more tax money available -- that would overburden the states,” Fekter told reporters. “We in Austria would have problems getting it through parliament.”
Fekter said she is also on guard against the IMF springing a surprise tonight by cutting its share of the Greek loans from its previous practice of delivering one third of the total.
Christine Lagarde, who was French finance minister when the crisis began and took over the IMF last year, declined to say how much the Washington-based fund will steer toward the new package.
“Greece has manifestly made very significant strides and now the work has to go on,” Lagarde said on her way in. “The IMF is here to be part of the work.”
Mid-March Deadline
European governments need to weld together the program tonight to give enough time for the bond exchange -- designed ultimately to write off about 100 billion euros of Greek debt -- to go ahead by a mid-March deadline.
The target is for the swap offer to run from Feb. 22 to March 9, so the exchange takes place in time for Greece to escape the full 14.5 billion euro cost of a March 20 bond redemption, German lawmakers were told last week by government officials.
Frustrated with Greece’s inability to meet two years of targets for cutting the deficit and selling off state assets, donor countries are also insisting on more control over how Greece spends the money.
Germany’s Schaeuble said Greece accepts the idea of paying the international funds into a special account, which would give priority to keeping Greece solvent before releasing money for the country’s budget.
‘Permanent Troika’
The Netherlands, one of four euro states still ranked as AAA borrowers, is pushing for monitors from the “troika” of European Commission, ECB and IMF to set up a full-time observation post in Athens.
“I am myself in favor of a permanent troika in Athens,” Dutch Finance Minister Jan Kees de Jager said before the Brussels meeting. “When you look at the derailments in Greece which have occurred several times now, it is necessary that there is some kind of permanent presence.”
Greece upheld part of its side of the bargain yesterday by spelling out 325 million euros in additional spending cuts, the latest of the unpopular measures that have provoked street protests in Athens.
The Greek economy shrank 7 percent in the fourth quarter from a year earlier as unemployment surged past 20 percent in November. The country’s output is forecast to shrink for the fifth straight year.
“It’s like a puzzle: all the pieces are on the table, we have to put them together,” French Finance Minister Francois Baroin said. “That’s what we’re going to do this afternoon.”
