Published November 12, 2012
BERLIN – Greece's international creditors are proposing granting the country two more years to meet its debt reduction targets as the country enters its sixth consecutive year of recession, according to a draft document obtained by The Associated Press Monday.
But the draft memorandum of understanding lacked crucial specifics on how much additional assistance the country would need and how that shortfall should be addressed, just as the finance ministers from the 17 countries that use the euro gathered in Brussels to discuss Greece's situation.
The country's so-called "troika" of creditors — the European Central Bank, the European Commission and the International Monetary Fund — has already pledged €240 billion ($305 billion) in bailout loans to keep Greece afloat while Athens implements reforms and austerity measures to get its finances in order.
Greece is waiting for the next €31.5 billion ($40 billion) installment of its bailout loan before it faces a bond repayment Friday that it may not be able to afford without the tranche, and it has passed a series of reforms this week to meet the conditions of the loan. But in recent months, it has become clear that country's bailout program is way off track, and deep disagreements persist among its creditors on how to right it.
The main aim of the bailout program is to get Greece back to a point where it no longer relies on international aid and can raise money on the debt markets. It has been given a deadline of 2020 to slash its debt to 120 percent of its economic output to achieve this goal. Current projections, however, suggest Greece is nowhere near reaching that target.
The Greek government therefore has been asking its creditors for more time so that it can become self-sufficient without inflicting yet greater damage on its ailing economy. The country is currently mired in a deep recession heading into its sixth year, with more than a quarter of Greeks unemployed.
"The two-year extension of the adjustment period will mitigate the impact on the economy, while securing a sustainable fiscal position," the draft document stated.
Jean-Claude Juncker, who chairs the group of eurozone finance ministers, said Greece's creditors have prepared a "positive" report assessing Greece's progress, but acknowledged that it was not complete.
As it stands, however, the report doesn't address the crucial question of Greece's debt sustainability. Many analysts have said a two-year extension to the debt reduction target could require as much as €30 billion in fresh assistance, or granting Greece a reduction in what it owes — meaning its eurozone creditors will have to agree to take losses on some of their loans.
French Finance Minister Pierre Moscovici and other ministers declined to comment on whether their countries would agree to wipe out some of the debt they hold as they headed into the meeting in Brussels.
Whatever the outcome of Monday's talks, no final decision on giving Greece the €31.5 billion loan will be made because some eurozone parliaments must approve the deal first.
Lawmakers in Germany said a vote could be held next week.