EU, IMF clash over Greece revives debt crisis fears

(Reuters) – A clash between Greece’s international lenders over how the stricken country where the euro zone debt crisis began can bring its debts down to a sustainable level reignited fears on Tuesday that the crisis could flare up anew.

Euro zone finance ministers

suggested that Athens should be given until 2022 to lower its debt/GDP ratio to 120 percent but International Monetary Fund chief Christine Lagarde insisted the existing target of 2020 should remain.

“We clearly have different views. What matters at the end of the day is the sustainability of Greek debt so that country can be back on its feet,” Lagarde said late on Monday, in an unusually public airing of disagreement.

Behind her sharp exchange with Eurogroup chairman Jean-Claude Juncker lies a rift over whether euro zone governments need to write off some of Greece’s debt to them to make it manageable. IMF officials have pressed for such a “haircut” while Germany, the biggest contributor to euro zone bailout funds, has vehemently rejected it as illegal.

German Finance Minister Wolfgang Schaeuble told reporters on Tuesday that the 2020 deadline was “a little too ambitious”.

“There’s a debate about a haircut for official creditors. On that I will say and most countries have said so in the past few weeks that that’s legally not possible,” he added.

Chancellor Angela Merkel has signaled she wants to keep Greece in the euro zone but is determined to avoid losses for German taxpayers before a general election in September 2013.

With so much stake, diplomats remain confident that a deal will be done to release a 31.5 billion euros tranche of bailout money which Athens urgently requires to avert bankruptcy.

But it is a way off yet.

Financial markets, which have been calmed by the European Central Bank’s pledge to buy euro zone government bonds to shore up the currency bloc, took a dim view of the failure to agree.

The euro dipped to a two-month low against the dollar and safe-haven German Bund futures rose to two-month highs.

“There seems to be quite a big difference of opinion between the IMF and euro zone finance ministers … but our view is still that Greece won’t leave the euro zone,” Rabobank rate strategist Lyn Graham-Taylor said.

Juncker, who heads the 17-nation group of euro zone finance ministers, said a further Eurogroup meeting would take place on November 20 and officials said more negotiations could be required the week after that to nail down a new deal.

French Finance Minister Pierre Moscovici told reporters on Tuesday that bailout money should flow by the end of the month.

“Our objective is to reach an agreement in principle on November 20 so that we can … proceed to the disbursement of funds by the end of this month,” he said.

The delay leaves Athens scrambling to meet a 5 billion euro bond repayment deadline on Friday, but EU officials were confident that it would not default.

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