05 November 2012

WSJ: Europe, central bank spar over Athens aid

Europe's governments and the European Central Bank are at odds about who should shoulder the financial burden of giving Greece more time to repay its loans and remain part of the eurozone.

The search for a solution for Greece, whether by forgiving some of the money it owes or giving it yet more bailout loans, has come back to haunt the currency union ahead of the ECB's monthly policy meeting. Greece faces a key Treasury bill repayment in less than two weeks, and the money isn't there unless governments provide additional aid or the ECB agrees to lend Greek banks the money to roll over the debt.

Governments and the ECB are under pressure because another player in Greece's bailout deals, the International Monetary Fund, says it will continue supporting Athens only if there is a realistic chance the aid can be repaid. ECB officials are willing to sell the central bank's Greek bondholdings for the price it bought them, forgoing any profit, people familiar with the matter said. But this step would meet only a fraction of Greece's financing needs. The bulk of the work must be done by European governments.

Greece's need for extra aid gives the eurozone several stark options. For many governments, especially in rich countries including Germany and Finland, again asking their parliaments for new loans for Athens is politically difficult. But even lending Greece the missing funds wouldn't solve the issue, since new loans would further drive up Greece's debt load.

The IMF in particular has been pushing the eurozone to reduce that debt load by writing off some of the money the bloc has already lent Greece. But if governments were to take a loss on some of the Greek rescue loans, they would walk back on the central promise they have made to their voters during the crisis: that the bailouts would be paid back. Several European officials have stressed that such debt forgiveness isn't seen as a feasible option at the moment.

Full article

© Wall Street Journal