* Euro zone, IMF at odds over forgiving official loans
* Greek debt could come down to 125 pct/GDP in 2020-report
* International lenders close to deal at third attempt
* ECB officials say debt write-down not on table for now
By Jan Strupczewski
BRUSSELS, Nov 26 Euro zone finance ministers and
the International Monetary Fund began their third attempt in as
many weeks to release emergency aid for Greece on Monday, with
policymakers saying a write-down of Greek debt is off the table
Greek Finance Minister Yannis Stournaras voiced confidence
the ministers would finally reach a deal after Greece had
fulfilled its part of the deal by enacting tough austerity
measures and economic reforms.
"I'm certain we will find a mutually beneficial solution
today," he said on arrival for what was set to be another
Greece, where the euro zone's debt crisis erupted in late
2009, is the currency area's most heavily indebted country,
despite a big "haircut" this year on privately-held bonds. Its
economy has shrunk by nearly 25 percent in five years.
EU Economic and Monetary Affairs Olli Rehn said it was vital
to disburse the next 31 billion euro tranche of aid "to end the
uncertainty that is still hanging over Greece". He urged all
sides to "go the last centimetre because we are so close to an
Greece had met international lenders' conditions and "Now it
is delivery time for the Eurogroup and the IMF," Rehn said.
Negotiations have been stalled over how Greece's debt,
forecast to peak at almost 190 percent of gross domestic product
next year, can be cut to a more sustainable 120 percent within
Without agreement on how to reduce the debt, the IMF has
held up payments to Athens because there is no guarantee of when
the need for emergency financing will end.
The key question is: Can Greek debt become sustainable
without the euro zone writing off some of the loans to Athens?
IMF Managing Director Christine Lagarde said on arrival that
the solution must be "credible for Greece". The IMF argues that
the debt can only be made sustainable if euro zone governments
write off some of their loans to Athens, but Germany and its
northern European allies have so far rejected any such idea.
DEBT RELIEF "NOT ON TABLE"
Two European Central Bank policymakers, vice-president Vitor
Constancio and executive board member Joerg Asmussen, said debt
forgiveness was not on the agenda for now.
"It has been clearly stated. It is not on the table.
Everything else is just rumours," Constancio told reporters in
Asmussen told Germany's Bild newspaper the package of
measures would include a substantial reduction of interest rates
on loans to Greece and a debt buy-back by Greece, funded by
loans from a euro zone rescue fund.
So far, the options under consideration include reducing
interest on already extended bilateral loans to Greece from the
current 150 basis points above financing costs.
How much lower is not yet decided -- France and Italy would
like to reduce the rate to 30 basis points (bps), while Germany
and some other countries insist on a 90 bps margin.
Another option, which could cut Greek debt by almost 17
percent of GDP, is to defer interest payments on loans to Greece
from the EFSF, a temporary bailout fund, by 10 years.
The European Central Bank could forego profits on its Greek
bond portfolio, bought at a deep discount, cutting the debt pile
by a further 4.6 percent by 2020, a document prepared for the
ministers' talks last week showed.
Not all euro zone central banks are willing to forego their
profits, however, the German Bundesbank among them.
Greece could also buy back its privately-held bonds on the
market at a deep discount, with gains from the operation
depending on the scope and price.
But the preparatory document from last week said that the
120 percent target could not be reached in 2020, only two years
later, unless ministers accept losses on their loans to Athens,
provide additional financing or force private creditors into
selling Greek debt at a discount.
The latest analysis for the ministers showed the debt could
come down to 125 percent of GDP in 2020, one euro zone official
with insight into the talks said.
FORGIVING OFFICIAL LOANS?
To cut the debt more boldly, the IMF wants the euro zone to
forgive Greece some of the official loans, in what is called
Official Sector Involvement (OSI) in EU jargon.
On Monday, the biggest battle is likely to be over just that.
"OSI is at the core of the problems with reaching a deal,"
one euro zone official with insight into the talks said.
German central bank governor Jens Weidmann has suggested that
Greece could "earn" a reduction in debt it owes to euro zone
governments in a few years if it diligently implements all the
agreed reforms. The European Commission backs that view.
An opinion poll published on Monday showed Greece's
anti-bailout SYRIZA party with a four-percent lead over the
Conservatives who won election in June, adding to uncertainty
over the future of reforms.
German paper Welt am Sonntag said on Sunday that euro zone
ministers were considering a write-down of official loans for
Greece from 2015, but gave no sources and a euro zone official
said such an option was never seriously discussed.
"It will be touch-and-go if we get a deal on Greece on
Monday," a senior euro zone official said. "Euro zone countries
have made concessions worth a lot of money already, so it is
difficult to see how this can move even further."
French Finance Minister Pierre Moscovici said on Sunday that
euro zone ministers made big progress to reach a common position
during at a conference call on Saturday in preparation for their
talks with the IMF on Monday.
"I will go with a firm determination, with a mandate from the
president and prime minister, to reach a conclusion," Moscovici
said. "We are very close to a solution."
Moscovici mentioned the reduction of interest on bilateral
loans, foregoing ECB profits on Greek bonds and the debt
buy-back as the options that would need to be applied for a deal
as well as additional financing for Athens to keep it funded
until 2016, rather than only until 2014.