10th Aug 2022

EU finance chiefs inch closer to agreement on Greece

  • Refuseniks say the German plan would cause market panic (Photo: Ahmad Nawawi)

EU finance ministers left an emergency meeting in Brussels late Tuesday night (14 June) managing to make only partial headway in overcoming a disagreement between the European Central Bank (ECB) and Germany, whose dispute over the level of involvement of private bondholders in any second bail-out of Greece has spilt into the public arena.

The economy chiefs remain split over the German proposal, which would see bondholders immediately swap their bonds for new ones with extended, seven-year maturities, giving Greece longer to resolve its debt troubles.

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The ECB for its part, backed by France and the European Commission, are arguing for something akin to the so-called 'Vienna Initiative' - a milder form of debt swap, in which bondholders rollover their debt but only when their existing bonds mature.

The central bank argues that the German plan cannot be construed as a voluntary restructuring and would amount to a default, causing market panic that could spread throughout the eurozone periphery.

Ministers were keen to impress reporters that movement had been achieved between the two sides, with Jean-Claude Juncker, eurogroup chief and Luxembourgish prime minister, saying the whole meeting had a merely "informational" character anyway.

A further informal session will take place on Sunday (19 June), ahead of a regularly scheduled finance ministers' meeting the next day in Luxembourg. But all eyes will be on a private chat between French President Nicolas Sarkozy and his German counterpart on Friday, where a bargain is hoped to be reached.

Luxembourgish finance minister Luc Frieden and his Belgian colleague, Didier Reynders pointed towards issues on which the two sides are converging.

Leaving the meeting, Frieden said: "Limited private sector involvement that does not have the risk of contagion to other countries is something that we are analysing both technically and politically."

Reyders suggested that the EU is "very close" to an agreement on a voluntary rollover with bondholders.

He warned against making any moves that could be construed as forcing bondholders' hands however. "It would be too dangerous to do that. Not only now for Greece and then maybe later for Portugal and Ireland," the minister said.

Speaking in the European Parliament earlier in the day, the presumptive candidate to take over as president of the central bank, Mario Draghi, held the line of the ECB, also warning against any mandatory moves.

"There are basically two initiatives that are under discussion. One is the Vienna Initiative, which to me looks entirely voluntary," Draghi said. "Another one is a debt exchange, which I haven't understood whether it is voluntary or it could end up being involuntary."

Meanwhile in Greece, self-styled 'indignant' protestors and trade unions prepared themselves for a blockade of parliament and another general strike.

Youthful protestors that have held Syntagma Square since 25 May in imitation of demonstrators in public squares in Spain vowed they will not let MPs into the building to discuss a fresh round of austerity cuts over the medium term, amounting to €6.5 billion this year alone.

Prime Minister George Papandreou also suffered a defeat on Tuesday as two of his deputies in his six-seat majority announced they would not support the measures.

Back in Spain, 'indignant' protestors are also preparing to blockade the regional Catalan assembly, which is attempting to push through local-level austerity measures. The proposed cuts would amount to 10 percent less in public spending, or €2.7 billion this year.

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