Brussels - Eurozone finance officials are examining ways of delaying parts or even all of the second bailout programme for Greece while still avoiding a disorderly default, several EU sources said on Wednesday.
Delays could possibly last until after the country holds elections expected in April, they said.
While most of the elements of the package which will total €130bn are in place, eurozone finance ministers are not satisfied that Greece’s political leaders are sufficiently committed to the deal, which requires Athens to make further spending cuts and introduce deeply unpopular labour reforms.
It is also not clear that Greece’s debt-to-gross domestic product (GDP) ratio, which currently stands at around 160%, will be cut to 120% by 2020 via the agreement, as demanded by the troika of the European Commission, International Monetary Fund and European Central Bank.
“There are proposals to delay the Greek package or to split it, so that an immediate default is avoided but not everything is committed to,” one official briefed on preparations for a eurozone finance ministers call later in the day told Reuters.
“They’ll discuss the options,” he said, adding: “There is pressure from several countries to hold off until there is a concrete commitment from Greece, which may not come until after they’ve held elections.”
Germany, Finland and the Netherlands are the countries pushing to delay the package, two other officials said, with Germany the most adamant and suggesting that final approval should only be granted after new elections are held.
Under the proposal, a debt swap agreement between Greece and private sector holders of Greek bonds, which aims to cut Athens’ debt burden by €100bn via the private sector taking a nominal 50% loss, could go ahead in the coming weeks, with the process beginning in around a week’s time.
If successfully completed, the swap would allow Greece to avoid missing a €14.5bn bond redemption payment on March 20. If Athens misses that payment, or the terms of the payment are not altered, it will be in default.
Around €30bn of the €130bn package is made up of “sweeteners” to be paid to private sector investors to encourage them to take part in the swap.
That portion of the package would have to be raised and paid out, and there would also need to be support of around €30bn to recapitalise Greek banks, but the bulk of the funds would not be signed off on.
Data from Athens on Tuesday showed the economy shrank 7.0% in the fourth quarter of 2011 on an annualised basis, making it all the harder for Greece to meet the target. One official estimated that Greece’s debt-to-GDP ratio may only fall to 140% by 202, given the latest figures.
Eurozone finance ministers will hold a conference call from 16:00 GMT to discuss how to proceed. The call replaces a face-to-face meeting, which was cancelled late on Tuesday because Greece had not provided sufficient commitments from its side and not all the paperwork was in place.
Asked whether the package could be split, a spokesperson for the European Commission said it was not decided.
“Up until now in the discussions, this has always been treated as an entire package,” spokesperson on economic and monetary affairs Amadeu Altafaj told reporters, adding specifically on the private sector portion: “Up until now, that’s never been separated out.
"Now what will happen tonight, I don’t know, I can’t preempt that. But that’s certainly the logic we’ve been following so far.” Not until April
One major problem with splitting the package is whether private holders of Greek bonds would be willing to sign up to a swap if Greece’s financing - which makes up the bulk of the second package - is not in place, since that would mean the state might not be able to meet future bond payments.
As a result, one eurozone source said it was possible that the entire second package - the private sector portion and the remainder - could be delayed until after Greek elections, when everyone hopes for greater clarity and commitment.
“This would mean we have to pay the €14.5bn on March 20, which would be a total waste,” said the eurozone source, who took part in discussions among deputy heads of eurozone finance ministries on Tuesday.
“But there is still money left from the first programme so we could do it,” they said, referring to Greece’s first, €110bn bailout programme, agreed in May 2010.
“This would mean that the talks on the second programme, including PSI (private sector involvement), which is part of the package, would be moved until there is a new Greek government in place.”
The frustration expressed by Germany, the Netherlands and others - reflected in the proposal to delay the rescue package - is in part designed to put political pressure on Athens. But officials say it is also genuine and a sign that patience is wearing thin after two years of trying to sort out Greece.
For now, the central aim of eurozone finance ministers remains to push ahead with the second package as agreed last October - which would mean signing off on PSI in the coming week, possibly at a Eurogroup meeting set for Monday.