Greece's international lenders failed for the second week running to agree how to get the country's debt down to a sustainable level and will have a third go at resolving their most intractable problem in six days' time. After nearly 12 hours of talks through the night during which myriad options were discussed, eurozone finance ministers, the International Monetary Fund and the European Central Bank failed to reach a consensus, without which emergency aid cannot be disbursed to Athens.
However the markets should be taking the following comments more closely:
"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," Eurogroup chairman Jean-Claude Juncker told reporters.
"There are no major political disagreements," he said.
There appears to be no other way except for the lenders to somehow come up with a solution for the Greece debacle.
Nonetheless, sharemarkets around the world reacted negatively, while the euro extended its fall against the US dollar in response. A document prepared for the meeting declared that Greece's debt cannot be cut to 120 percent of GDP by 2020, the level deemed sustainable by the IMF, unless euro zone member states write off a portion of their loans to Greece. The 15-page document, circulated among ministers, set out in black-and-white how far off-track Greece is in reducing its debt to the IMF-imposed target, from a level of around 170 per cent of GDP now.
The document set out various ways Greece's debt could be reduced between now and 2020, but concluded they would not be enough without eurozone creditors taking a hit on their own holdings - something Germany and others have said would be illegal.
The document did say Greek debt could fall to 120 per cent of GDP two years later - in 2022 - without having to impose any losses on euro zone member states or forcing through a buy-back of Greek debt from private-sector bondholders. But International Monetary Fund chief Christine Lagarde rejected such an extension at similar talks last week. Without any corrective measures the document said Greek debt would be 144 per cent in 2020 and 133 per cent in 2022, figures first reported exclusively by Reuters last week.
The view of the IMF, which has played a role in both Greek bailouts so far, is critical since it provides international legitimacy and credibility for the efforts the euro zone is making. If the IMF were to withdraw its support for the bailout programmes, it could have a deeply damaging market impact.
The document appeared designed in part to convince the IMF that Greek debt could be made sustainable just two years behind schedule if only it would soften its stance.
It remains possible that Lagarde could provide further wiggle room, but she is believed to favour the idea of eurozone member states taking a writedown on some of the loans extended to Greece in order to stick to the 120 per cent in 2020 goal.
Among the main measures under consideration to bring Greece's debt burden down as rapidly as possible is a debt buy-back under which Greece would offer to purchase bonds from private investors at a discount to their nominal value.
Several options are under consideration, officials have said and the document makes clear, including using about 10 billion euros to buy back bonds at between 30 and 35 cents in the euro.
There are also proposals to reduce the interest rate on loans already extended by euro zone countries to Greece, to impose a moratorium on interest payments and lengthen the maturities on loans, all of which would cut the debt burden.
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.
Because of the latest delay, the ministers were unable to give a go-ahead for the next tranche of up to 44 billion euros of emergency funds to be paid to Athens. The payment would provide short-term relief to Athens, but it is long-term debt that is the core issue.
Hence it looks its going to hurt the EU more if they fail to come up with something for Greece, having seen Greece doing its part already. All in, despite the negativity surrounding the developments, its actually a positive because it all points to a MUST solution in 6 days.