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IMF spat clouds efforts to aid Greece

Patrick Donahue London

European finance ministers aim to stitch together Greece’s next aid payment as a sputtering euro zone economy and a spat with the International Monetary Fund (IMF) cloud efforts to resolve the debt crisis.

The finance chiefs meet in Brussels today for the second time in a week after they agreed seven days ago to keep Greece’s bailout aid flowing. In addition to a disagreement between the EU and IMF to extend Greece’s debt-reduction target, the ministers will try to re-engineer the bailout without asking taxpayers to put up more money.

The talks were “likely to be tense as all players set out their positions”, Thomas Costerg, an economist at Standard Chartered in London, said.

“Greece’s debt is likely to be kicked further down the road, but we could see some constructive statements.”

The meeting of the ministers from the euro zone underscores skirmishing among EU officials confronting rising unemployment and a slowing economy as they struggle with the three-year-old debt crisis. The talks precede a November 22-23 EU summit to resolve the bloc’s budget, a project threatened by a dispute with the UK.

With tens of thousands of Europeans staging protests last week against austerity measures and unemployment, shifting dynamics in other European countries could foreshadow renewed conflict – an early election in Italy, a regional vote in Spain and an approaching bailout package for Cyprus.

Greek bonds rallied as analysts at Commerzbank, BNP Paribas and Société Générale speculated the finance ministers will achieve their aims. The yield on 10-year Greek notes fell 22 basis points to 17.25 percent.

“Greece, despite the exaggerated view in the German press, is in a tough situation yet where the indicators are pointing up,” German Deputy Finance Minister Steffen Kampeter said yesterday.

IMF director Christine Lagarde took issue with EU governments’ decision to push back Greece’s debt-reduction target by two years to 2022 against the fund’s recommendations, raising questions over whether the IMF would keep financing Greece.

Lagarde, who cut short a visit to southeast Asia to return to Europe, signalled a potential clash in an interview in Manila on Saturday by saying she would defend the IMF’s credibility.

Lagarde said that she was approaching the talks feeling “patient and resilient”. Even so, “we never leave the table”, she said when asked about dropping support.

The IMF target is for a reduction of Greece’s debt to 120 percent of gross domestic product (GDP) by 2020, from a projected peak of 190 percent of GDP in 2014. An agreement on what qualifies as sustainable debt in Greece is required to plug a finance gap of as much as e32.6 billion (R367.9bn).

Even though European leaders have pledged to do all they can to avert a Greek exit from the single currency, they refused to return to parliaments for more funding. – Bloomberg

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