After an epic twelve hour long debate Europe’s finance ministers failed to agree on the desperately needed debt reduction package for embattled Greece causing the Euro to fall and raising the possibility that Greece will default on its debt and possibly be forced out of the Europe.
In a situation that makes the two organisations appear to be dithering and bickering, the International Monetary Fund and EU did not come to a consensus over how to agree on a debt reduction package.
Creditors led by Germany refused to cough up new money or offer debt relief leading to finance chiefs being unable to scrape together enough funds to alleviate the Greek debt burden, set to hit a staggering 190% of GDP in 2014.
“We have a series of options on the table on how to close the financing gap,” German Finance Minister Wolfgang Schaeuble told reporters. “We discussed the issue very intensively, but since the questions are so complicated we didn’t come to a final agreement.
The decision shows just how truly divided the European Union is over the issue and rumours of a clash between the Union and the IMF appear to have been true. News of the deadlock came as a big shock to many after last week’s prediction by the Jean-Claude Juncker the Prime Minister of Luxembourg that ‘a definitive decision’ would be made.
“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,” Juncker told reporters.”There are no major political disagreements,” he said.
The Eurozone minister’s favour giving Greece an extra two years, to 2022, to bring its debt to 120% of GDP, but the IMF has resisted that extension.
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 after being battered by the deep austerity measures being imposed upon it. A document being circulated by ministers shows just how far off track Greece remains to be on reducing its debts, but how can the nation afford to pay that debt off when its economy is shrinking, unemployment continues to rise and tax revenues falls. The possibility of clearing part of the debt to a sustainable level was refused outright by Germany and other EU states.
“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,”
Greek Prime Minister Antonis Samaras must be close to despair after the decision. He had managed to successfully force throughhighly unpopular EU and IMF proposed austerity measures and won the vote over the nation’s 2013 budget.
“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.”
Pressure for the Eurozone 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.
The Pound to Euro exchange rate is currently trading at 1.2451
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