27th Oct 2016

Greece deal delayed by troika discord, government quarrels

  • International lenders are at odds about sharing the Greek bill (Photo: Queenofhearts820)

The EU and the International Monetary Fund (IMF) are at odds over how to fund Greece for two extra years, while the Greek government has still not reached a agreement on promised budget cuts needed for the next tranche of bailout money.

Greek finance minister Yannis Stournaras spent a few hours in hospital on Thursday (25 October) where he was diagnosed with extreme fatigue and a viral infection.

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The news came one day after he told Greek parliament that the government reached a deal with the troika of international lenders on granting Greece two more years to reach its deficit and debt targets.

But EU officials in Brussels and the head of the European Central Bank - also part of the troika - promptly dismissed the announcement saying that talks are still ongoing.

The left-wing junior party in the Greek government is opposed to labour market reforms which are part of the troika requirements.

"We refuse to accept the troika demands on labour issues ... We call on our European partners to withdraw the troika demands that scrap Greek workers' rights," the Democratic Left party said in a statement.

Within the troika itself there is disagreement on how to fund the two extra years.

The European Commission and the European Central Bank argue that since Greece is in worse economic shape than expected, the bailout target of reaching a debt of 120 percent of GDP in 2020 should be moved to 2022.

The Washington-based IMF is against this, however.

An IMF debt analysis presented to eurozone officials spoke of a debt level of 136 percent of GDP in 2020, and that in a "positive scenario" of economic growth and successful privatisations, Reuters reports.

Instead, the IMF want the Europeans to accept restructuring of debt - a taboo issue, particularly for Germany.

Troika members are also at odds over how to fill a €16-30 billion funding gap that will emerge if Greece is given time until 2016 rather than 2014 to reach a budget surplus.

The IMF would like to see the ECB and EU governments accept losses on the Greek bonds they hold, but its European partners are firmly against it.

European ideas on how to fund the gap include allowing Greek banks to borrow money from the ECB; or the eurozone bailout fund (ESM) to buy back some of the existing debt; cutting the interest rate of existing loans and rolling their maturities. But none of these are expected to cover the entire funding gap.

German finance minister Wolfgang Schauble earlier this week told Die Zeit weekly that he would count on the opposition's support in the Bundestag if more money had to be given to Greece - an admission that his coalition is against it.


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

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