RPT-Greece might get new loan, issue bond to close 2014 funding gap

Fri Jul 26, 2013 10:42am EDT

BRUSSELS, July 26 (Reuters) - New loans for Greece or an early return to debt markets with a short-term bond are likely to be among options discussed by lenders to cover a 3.8 billion euro funding gap next year in the country's bailout, a senior EU official said.

The government in Athens and its troika of international lenders from the European Union, European Central Bank and International Monetary Fund will discuss the supplementary financing options in a few months' time, the official said.

"There are various ways in which this gap could be closed. Either member states provide new loans, (or) ...not all the funds that are currently in the programme are needed, (or)... later next year if Greece might be able to return to the markets and actually issue short term bonds," the official said.

"I think there are various ways in which this gap could be closed and that will have to be discussed in the autumn."

The gap will appear in the second half of 2014 because, when the current programme was designed late last year, euro zone policymakers had expected eurozone central banks to roll over their holdings of Greek bonds maturing during the bailout.

But euro zone central banks believe that this would be seen as monetary financing of government borrowing, which is forbidden under European Union law.

"Therefore we no longer count there will be such a roll-over," the official said.

Euro zone officials will discuss ways to close the gap after the summer break at the end of August.

Another option, mentioned previously by the EU Commission, could be to spend unused bailout money initially earmarked for bank recapitalisation in Greece.

The official said the amount that might be available from the bank recapitalisation envelope would only be known early in 2014, when a review of banks' capital needs and a stress test of their assets ends.

Greece might consider trying to borrow from the market again because its fiscal consolidation efforts might turn out to be ahead of plan. The country was due this year to reach a primary fiscal balance - which excludes the cost of servicing its debt - and a primary surplus in 2014.

"Fiscal consolidation is on track so I would not rule out that there may be a small primary surplus already this year so that Greece over achieves its target," the official said.

Euro zone finance ministers promised that if Greece reaches a primary surplus and meets all other conditions of the bailout, they would consider further help to make sure the country's debt falls substantially below 110 percent of GDP in 2022.

According to a Eurogroup document from last December, this was to include a further interest rate reduction on bilateral loans extended to Greece under its first bailout and cutting the Greek contribution to EU-funded projects in Greece.

Some in Greece believe further help may mean forgiving some of the bailout loans, because most of the Greek debt is now with euro zone governments and institutions.

But the official said any discussions on Greek debt could only take place in April next year, when the EU's statistics office publishes 2013 debt and deficit numbers.

"A discussion on debt should happen next April. The Eurogroup does not speak of debt relief but of further support, if it is needed and if all conditions are met," the official said.

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