- European lenders indicate they are prepared to overlook missed Greek budget targets
- Athens says it needs overdue funds in matter of days or it risks runnning out of cash
- Eurozone finance ministers also discuss increasing €440bn EFSF bail-out fund
Eurozone finance ministers gave a clear indication they were preparing to paper over Greece's failure to hit international lenders' mandated budget targets for 2011, saying they would now evaluate Athens' performance based on goals that combine both this year's and next year's finances.
The decision came a day after Greek finance minister Evangelos Venizelos acknowledged Athens would miss the 2011 benchmarks, which the European Union and the International Monetary Fund had set as a prerequisite for disbursing an essential €8bn bail-out payment that is already past due.
By combining 2011 with 2012 targets instead, the EU appeared to be preparing to fudge this year's missed benchmarks, paving the way for the closely watched aid payment, which Athens says it needs in a matter of days or it will run out of cash. But senior eurozone officials warned they were likely to extract new concessions for 2013 and 2014 in the coming days before signing off on the new money.
Jean-Claude Juncker, the Luxembourg prime minister who heads the group of eurozone finance ministers, insisted that while the new measures would probably delay the payment until November, officials remained steadfast in preventing a Greek default.
"We had no one advocating a default of Greece," Mr Juncker said. "Everything will be done to avoid that, and it will avoided."
At the same time, Mr Juncker signalled the new €109bn bail-out for Greece -- agreed just two months ago -- was likely to be reopened, particularly the complicated plan to get Greek bondholders to shoulder some of the burden by taking an estimated 21 per cent "haircut" on their debt repayments. Any new plan is likely to require deeper cuts for private bondholders, though Mr Juncker declined to say what changes would occur.
"We have to take into account we have experienced changes since the decision we had taken on July 21," he said. "These are technical revisions were are discussing."
Although the finance ministers delayed yet again the decision on the Greek aid tranche, they did settle a long-festering disagreement over a demand by Finland to get Greek collateral in exchange for participating in the new bail-out.
Under a deal brokered by Klaus Regling, the head of the eurozone's €440bn bail-out fund, Finland will now be able to get collateral, but only under highly onerous terms that all other eurozone countries agreed to shun.
The deal will force Finland to pay in billions of euros into a new, permanent €500bn bail-out fund in 2013, the year it comes into operation; all 16 other eurozone countries are allowed to make payments into the new fund over five years.
In addition, Finland would be forced to forfeit most of the profits it would be due on bail-out loans to Greece and, if Greece were to default, Finland would not be able to access its collateral for more than 15 years.
The collateral will also come in a much more roundabout manner than the original cash deal Helsinki struck with Athens this summer. Mr Regling said Greek government bonds would be given to Greek banks, which would then turn them over to an independent trustee. The trustee would sell the bonds and use the proceeds to invest in highly rated debt, which would only then be held as collateral for Finland.
That complicated process may enable the eurozone to avoid defaulting on Greek bonds with so-called "negative pledge" clauses. Such clauses, which exist in about 10 per cent of Greek bonds, force a default if some creditors are given a better deal than others.
For the first time, eurozone finance ministers discussed increasing the firepower of the €440bn bail-out fund, formally known as the European Financial Stability Facility, although no decisions were made. Officials believe new tasks soon to be given to the EFSF -- including the ability to recapitalise eurozone banks and to buy bonds of struggling eurozone governments -- will require more than €440bn.
Mr Juncker said there was general agreement that measures to increase the fund's "efficiency" were needed -- widely expected to be a plan to leverage its assets so it can intervene well beyond its €440bn headline number -- and suggested a new plan could be agreed by the end of the month.
Mr Juncker said that plans to increase the EFSF's firepower by leaning on the European Central Bank were not likely to be approved, narrowing the number of options under consideration.