European policymakers must now turn their attention to unlocking funds to keep Greece solvent after a summit failed to yield a deal on seven-year budget for the bloc.
Eurozone finance ministers were to hold a conference call yesterday to prepare for their third meeting this month on Greece’s rescue, which is to take place tomorrow.
As with the budget talks for the 27-nation EU, eurozone finance ministers are deadlocked on a plan to steer the country back to fiscal health.
“There’s no time to waste” in finding a solution for Greece, German Chancellor Angela Merkel told reporters on Friday in Brussels.
A solution “is being intensively worked on,” she added.
An agreement, which would release an aid payout of at least 31 billion euros (US$40 billion), may raise Greece’s debt target to 124 percent of GDP in 2020 from a previous goal of 120 percent, a Greek official said on Thursday. The cost of reaching the new target from a currently projected trajectory of 129 percent of GDP that year is about 10 billion euros, the official added.
The main obstacle to clearing the loans for Greece is a plan to reduce the interest rates charged by eurozone creditors. A cut in interest rates would put them below the cost of funding for some of the 17 eurozone countries, the official told reporters in Brussels.
The latest chapter in the Greek economic crisis that opened in 2009 was triggered by the EU ministers’ decision to extend by two years — to 2016 — the deadline for Greece to cut its budget deficit to 2 percent of GDP.
The extra time drove its projected debt higher, stirring tensions with the IMF. The fund has provided about one-third of the 148.6 billion euros in loans funneled to Greece since 2010.
Britain’s defense of its cash-back guarantee and France’s clinging to farm aid gave the summit the flavor of EU negotiations in the 1970s or 1980s, diluting efforts to equip Europe with a budget to make it more competitive.
Eastern and southern countries said reduced financing for public works projects would condemn them to lag behind the wealthier north.
In the absence of an accord by late next year, the EU would roll over its annual budget.
At stake is a spending plan for the years from 2014 to 2020 that would total about 1 percent of EU-wide GDP. While that sum is paltry compared to the average 50 percent of GDP that each country spends inside its borders, the political resonance is far larger.
Wealthier countries such as Germany, the UK, Denmark, Sweden and the Netherlands banded together to cut what they pay to the collective pool, pounding away at the original proposal of 1.033 trillion euros that came out in the middle of last year.
By the time the leaders convened, the figure on the table was 973 billion euros. It was soon trimmed to 971 billion euros, still too much for financially stronger countries that pressed for another 30 billion euros in cuts.
The alliance of spending cutters unraveled when it came to the financing side of the budget. While British Prime Minister David Cameron defended a rebate won by then-British prime minister Margaret Thatcher in 1984, Germany, the Netherlands and Sweden sought better terms for their own refunds, as Denmark made a bid to join the money-back club.
Meanwhile, French President Francois Hollande paired his farm aid advocacy with calls for savings elsewhere, since France is among the 11 countries that pay more into the EU budget than they get out. As a result, agriculture was the relative winner as the leaders strengthened some budget lines and pared others.