Eurozone ministers wrestle with Greek debt, IMF split

Eurozone finance ministers will try Tuesday to reach a framework agreement on crucial aid to Greece and heal a split with the International Monetary Fund over a key Greek debt reduction target. "We are headed for an agreement, but a partial one," said a European diplomat who asked not to be named. The comment suggested that some outstanding issues might have to wait until other meetings are held in December. Another European source underscored the will to reach a political agreement, but noted that a finalised deal could take a few more days. The finance ministers could thus require yet another meeting before the end of November that would probably be held by telephone. Greece is "totally ready" for the meeting on Tuesday, Finance Minister Yannis Stournaras said on Monday. "There are no longer any pending issues on our side. Greece is totally ready," Stournaras told reporters in Athens. The country has been waiting since June for an instalment of aid worth 31.2 billion euros ($40 billion) from a European Union-International Monetary Fund loan it was initially granted early this year. By the end of the year, Greece is also due to receive two more aid payments, worth 5.0 and 8.3 billion euros, in exchange for which it has pledged to implement a series of unpopular austerity budget measures. IMF head Christine Lagarde, who has clashed openly with Eurogroup head Jean-Claude Juncker on issues related to the Greek rescue plan, says the gathering is crucial to getting stricken Greece back on its feet and its debt mountain cut sharply to sustainable levels. "It's a question of... making sure that we focus on the same objective, which is that... Greece can operate on a sustainable basis," Lagarde said on Friday. Greece's debt burden is nearly 180 percent of GDP and expected to rise to 190 percent by 2014. That is about three times the EU's 60-percent limit and way beyond what the country can support, meaning it has to be reduced one way or another. Under the current bailout, private sector creditors also agreed to write-off 100 billion euros of Greek debt, and it has been suggested that official creditors should now do the same -- an option both the IMF and the European Central Bank (ECB) rule out. In Germany, a finance ministry spokeswoman said on Monday a "haircut", or reduction, of the official debt level was "unimaginable". "We are working intensively to find a common line," she nonetheless added. The IMF cannot extend more aid to countries if their debt is classed as unsustainable. The ECB meanwhile cannot accept a write-down because doing so would mean in effect that it was giving a government direct financing, which its rules forbid. That is not the only problem. Under its bailout, Greece was supposed to reduce its public deficit -- the shortfall between government revenue and spending -- to the EU limit of 3.0 percent of GDP by 2014, but last week's meeting agreed a delay to 2016. That, however, produces a financing gap of nearly 33 billion euros as the targets are spaced out, which has to be covered by governments wary of giving any more to Greece and under pressure to cut their own spending at all costs. The immediate issue is approval of about 31 billion euros in long-delayed aid funds after Greece adopted a tough new austerity package and 2013 budget, as required by its creditors -- the EU, IMF and ECB. Last week, Greece raised enough funds in one-month bills to cover debt maturing on Friday, but it has more payments due -- and in mid-December it will also have to find the money to cover the very bills it issued. As Greece risks getting caught in a vicious cycle, the circumstances are not getting any better -- data on Thursday showed the eurozone back in recession for the second time in three years, with the problems spreading to traditionally stronger members such as Germany. The downturn is startlingly sharp in Greece itself, where the economy has shrunk by one-fifth since the crisis broke and now faces a sixth year in recession. Dutch bank ING said in a note that the eurozone finance ministers had to resolve two issues: how to bridge Greece's financing gap and how to restore sustainable debt by 2020. "Financing the funding gap can probably be achieved by lowering the interest rates on the current Greek loans and extending their maturities," ING said. "Restoring debt sustainability, however, should be more complex and the issue of a public sector (debt) haircut is still on the table."