Greece cannot receive its much-delayed and critically-needed bailout tranche of €31.5bn (£25bn) unless its national debt level is deemed to be on a path of eventual sustainability, but Athens will not be allowed to default on €5bn of debt that needs to be redeemed next week, a senior eurozone official said on Friday.
Ahead of a meeting of eurozone finance ministers, International Monetary Fund officials and the European Central Bank on Greece on Monday, the official made plain that there was unlikely to be any quick agreement. Privately senior officials in Brussels say that the Europeans and the IMF are in deep dispute about Greece, meaning that little can be resolved and "everything is open."
Monday's meeting, postponed from this week, had been expected to sign off on the big tranche of loans delayed since the summer, after the Greek parliament's adoption of a new austerity package this week and its anticipated passing of a new budget on Sunday.
"One round of discussions may not suffice to come to a final decision on the whole package," said the official. "I am not pretending we'll come to a result and a solution on this. There's a high degree of possibility of the need for a second round of discussions."
He made it plain that there could be no further loans until that decision was taken.
The long-awaited report on Greece from the troika of IMF, ECB, and European Commission officials is expected at the weekend before Monday's meeting. It will report on Athens' compliance with the bailout terms and also include a "debt sustainability analysis" which is the main sticking point and the focus of the row between the IMF and the Europeans.
At IMF insistence, the bailout terms stipulate that Greek national debt may be no higher than 120% of gross domestic product by 2020 to qualify for the verdict of being sustainable. The troika report is certain to state that this goal is unachievable.
The official raised the prospect of extending that deadline to 2022. Eurozone officials had been seeking to "decouple" the debt sustainability issue from the release of the tranche of loans, but have given into IMF pressure to link the two factors.
Several eurozone governments would only be prepared to release the loans "once [the debt] is seen as sustainable and we are convinced of this," said the official.
Some €5bn of Greek short-term debt will mature next Friday, and it will not have the money to repay the loans unless the next aid tranche is released. The ECB is under pressure to give Greek banks permission to hold more of the country's sovereign debt, allowing the €5bn of bills to be rolled over.
The official emphasised that Athens would not be allowed to default on the debt, meaning that the ECB may act.
Despite IMF pressure on the eurozone and the ECB to write down their loans to Greece and take losses, the official said the ECB "won't tolerate any haircuts on its Greek bond holdings." The German government takes a similar stance.
There is broad agreement that the Greek bailout regime has to be extended by two years to 2016, generating a financing gap of up to €30bn. But there is no deal on how to fill that hole. Debt buybacks ("much more complicated than you can imagine"), lower interest rates on the eurozone loans and extending their maturities were all being considered.
But the official said that Greece's cash needs for this month and next should be "easily covered".
"There will not be any defaults on 16th November."
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