About that meeting of eurozone finance ministers, ECB and IMF officials that collapsed in the early hours of this morning (at least, until Monday) for ‘further technical work’…
First: looks like our bold call was correct. Um, yay?
Second, Reuters says it has the document prepared for the meeting and circulated among the ministers. It reportedly pushed for either official bondholders taking a loss (which Germany is loath to do), or permitting a two-year extension on Greece’s 120 per cent debt-to-GDP ratio (which the IMF is loath to do):
A document prepared for the meeting and seen by Reuters declared that Greece’s debt cannot be cut to 120 percent of GDP by 2020, the level deemed sustainable by the IMF, unless euro zone member states write off a portion of their loans to Greece.
The document set out various ways Greece’s debt could be reduced between now and 2020, but concluded they would not be enough without euro zone creditors taking a hit on their own holdings — something Germany and others have said would be illegal.
There’s also the suggestion that this could all be avoided with the two-year extension, to 2022, which caused such visible discord between Jean Claude-Juncker and Christine Lagarde at the press conference after last week’s meeting:
The document did say Greek debt could fall to 120 percent of GDP two years later — in 2022 — without having to impose any losses on euro zone member states or forcing through a buy-back of Greek debt from private-sector bondholders.
Without any corrective measures the document said Greek debt would be 144 percent in 2020 and 133 percent in 2022, figures first reported exclusively by Reuters last week.
“To bring the debt ratio down further, one needs to take recourse to measures that would entail capital losses or budgetary implications for euro area member states,” the document says.
“Capital losses do not appear to be politically feasible and would jeopardize, at least in a number of member states, the political and public support for providing financial assistance.”
Malcolm Barr from JP Morgan writes:
As much as the tone of the participants in the meeting appears moderately constructive at this point, the fact that two attempts to broker agreement have now failed demonstrates the difficulties in generating a mutually acceptable solution.
Gary Jenkins from Swordfish Research believes the markets are so accustomed to this can-kicking that yet another iteration won’t be too disruptive, as long as there is still the prospect of some kind of deal soon. And Monday November 26 is not so very far away for the next round of kicking.
However, he adds:
Considering how “complicated” the issues are one wonders how on earth they would ever agree anything for a country the size of Spain…
Indeed. Especially, as UBS’ Paul Donovan notes, the participants in such meetings appear to be getting a bit soft:
The Euro finance ministers gave up after a mere eleven hours of talking (where are the summits of yesteryear, when we would have seventy two hours of discussions concluding with a statement rendered incoherent by caffeine?
Euro zone, IMF fail to strike Greek debt deal – Reuters