Greece's international lenders failed for the second week running to agree how to get the country's debt down to a sustainable level and will have a third go in six days' time.
After nearly 12 hours of talks through the night during which myriad options were discussed, euro zone finance ministers, the International Monetary Fund and the European Central Bank failed to reach a consensus, without which emergency aid cannot be disbursed to Athens.
The IMF has so far refused to give Athens an extra two years to meet its debt target, while European governments led by Germany refuse to write off loans, two options which might make the targets easier to reach.
"We are close to an agreement but technical verifications have to be undertaken, financial calculations have to be made and it's really for technical reasons that at this hour of the day it was not possible to do it in a proper way and so we are interrupting the meeting and reconvening next Monday," Eurogroup chairman Jean-Claude Juncker told reporters.
"There are no major political disagreements," he said.
Nonetheless, the euro extended its fall against the dollar in response, and German bond futures were higher as investors were expected to rush into the safe haven.
Prime Minister Antonis Samaras said the lack of a debt deal between the country's lenders over technical reasons did not justify holding up aid needed to avert Greek bankruptcy. Greece's next big debt repayment is due in mid-December.
"Greece did what it had committed it would do. Our partners, together with the IMF, also have to do what they have taken on to do," Samaras said in a statement.
"It is not only the future of our country, but also the stability of the entire eurozone that depends on the successful completion of this effort in the following days," he added. "Any technical difficulties in finding a technical solution do not justify any negligence or delays."
Athens says it has enacted tough reforms but needs more time to reach fiscal targets agreed with its lenders because its economy has continued to shrink.
A document prepared for the meeting and seen by Reuters declared that Greece's debt cannot be cut to 120 percent of GDP, the level deemed sustainable by the IMF, unless either euro zone member states write off a portion of their loans to Greece or the IMF agrees to extend its deadline by two years to 2022.
The 15-page document, circulated among ministers, set out in black-and-white how far off track Greece is in reducing its debt to the target from a level of around 170 percent of GDP now.
Germany and other EU states say writing down their loans to Greece would be illegal.
"A debt haircut may be the most comfortable and easy path for the affected country ... but our aim must be to fight the roots of the indebtedness," Norbert Barthle, budget spokesman for German Chancellor Angela Merkel's Christian Democrats said.
"It would cost money, it would be a fatal signal to Ireland, Portugal and possibly Spain, as they would immediately ask why they should accept difficult conditions and push through difficult measures...and it would have consequences under budget law," Barthle said in a radio interview.
The Eurogroup document said Greek debt could fall to 120 percent of GDP two years late - 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.
But International Monetary Fund chief Christine Lagarde rejected such an extension at similar talks last week.
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 said.
"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."
Juncker said at a meeting a week ago that he wanted to extend the target date to reduce Greek debt by two years to 2022, but Lagarde insists the 2020 goal should stand.
The document appeared designed in part to convince the IMF that Greek debt could be made sustainable just two years behind schedule if only Lagarde would soften her stance. She is believed to favor euro zone member states taking a writedown on loans to Greece in order to stick to the 2020 goal.
DEBT BUYBACK
Among the main measures under consideration to bring Greece's debt burden down as rapidly as possible is a debt buy-back under which Greece would offer to purchase bonds from private investors at a discount to their nominal value.
Several options are under consideration, officials have said and the document makes clear, including using about 10 billion euros to buy back bonds at between 30 and 35 cents in the euro.
There are also proposals to reduce the interest rate on loans already extended by euro zone countries to Greece, to impose a moratorium on interest payments and lengthen the maturities on loans, all of which would cut the debt burden.
Pressure for the euro zone to come up with a solution is high not just because Greece is running out of money and financial markets want a dependable solution, but because Athens has initiated virtually all the steps demanded of it to cut spending, raise taxes and overhaul its economy.
"Greece has delivered. Now it's up to us to deliver," Juncker said.
Because of the latest delay, the ministers were unable to give a go-ahead for the next tranche of up to 44 billion euros of emergency funds to be paid to Athens.
The payment would provide short-term relief, but it is long-term debt that is the core issue.
The European commissioner for economic affairs, Olli Rehn, said as he arrived for the meeting that the euro zone should be ready to do more for Greece in the coming years, an apparent nod to the idea of government-sector debt writedowns.
"It's essential now that we take a decision on a set of credible measures on debt sustainability and, at the same time, we need to be ready to take further decisions in the light of future developments," Rehn said.
© Thomson Reuters.
