Second Greek bailout in reach, funding gap narrows

Mon Feb 20, 2012 6:07pm EST
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By Luke Baker and Jan Strupczewski

BRUSSELS (Reuters) - Euro zone finance ministers inched towards approving a second bailout for debt-laden Greece on Monday that would resolve Athens' immediate repayment needs but seems unlikely to revive the nation's shattered economy.

Agreement on a 130-billion-euro rescue package with strict conditions would draw a line under months of uncertainty that has shaken the currency bloc, and avert an imminent bankruptcy.

After seven hours of talks, senior officials said ministers had found ways to cut Greece's debt to between 123 and 124 percent of gross domestic product by 2020, but were pressing for more. Negotiators for private bondholders had offered to accept a bigger loss to help plug the funding gap.

A report prepared for ministers by EU, European Central Bank and IMF experts, obtained exclusively by Reuters, said Greece would need extra relief to cut its debts to the official target of 120 percent of GDP by 2020.

If Athens did not follow through on economic reforms and savings, its debt could hit 160 percent by that date.

"Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it," the 9-page confidential report said.

The euro zone sources said national central banks could restructure Greek bonds held in their investment portfolios in the same way as private investors, cutting Athens' debt by another 3.5 percentage points.

If the ECB were to forego profits on its Greek holdings, that would raise another 5.5 percentage points of GDP, the report showed. However, the sources said some euro zone countries were reluctant to pursue this option.   Continued...

(L to R) Greece's Finance Minister Evangelos Venizelos, Greece's Prime Minister Lucas Papademos and Germany's Finance Minister Wolfgang Schaeuble attend a Eurogroup meeting at the European Union council headquarters in Brussels February 20, 2012. REUTERS/Yves Herman