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Euro zone mulls longer Greek bailout, but Athens refuses

Greek Prime Minister Antonis Samaras
Ayhan Mehmet | Anadolu Agency | Getty Images
Greek Prime Minister Antonis Samaras

Euro zone ministers are considering extending Greece's bailout by six months to mid-2015, according to a document obtained by Reuters, but Athens said it was only willing to consider an extension of a few weeks to the unpopular program.

Extending the program beyond a few weeks into the new year would complicate Prime Minister Antonis Samaras' efforts to secure victory for his preferred candidate in a presidential vote in February. He had depended on exiting the EU/IMF bailout by the end of the year, when funding from the EU is due to end.

"Greece has not received any written proposal on an extension," a government official told Reuters. "In any case, everything that the prime minister and Finance Minister (Gikas) Hardouvelis has said stands -- that Greece can discuss only a technical extension, which cannot be longer than a few weeks."

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An extension of the bailout, under which Athens will have received a total of 240 billion euros ($300 billion) since 2010, is necessary because international lenders and the Greek government are still negotiating what Athens must do to get the remaining 1.8 billion euros and secure a back-up credit line for after the bailout ends and Greece returns to market financing.

Athens needed to wrap up its bailout review by a meeting on Dec. 8 of euro zone ministers to meet the timeline for exiting by the end of the year. But the talks have been held up by a row over a budget shortfall next year, and a senior euro zone official on Wednesday said Greece would have to ask for an extension on its bailout because a credit line to replace the program will not be ready in time.

Euro zone officials are now urging the country to reach a deal by Dec. 14, a Greek finance ministry official said.

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"Although the purpose of the technical extension would be to give more time to the Greek authorities to prepare legislation for adoption in January 2015, the technical extension could be for a longer period to cover for the possibility of delays in the run up to the Greek Presidential elections," the document, prepared for euro zone ministers, said.

"In this respect, an extension until end Q2 2015 seems appropriate, with the central scenario assuming a staff level agreement before the Eurogroup on 8 December, completion of all the prior actions by mid-January, a final disbursement from the EFSF (euro zone bailout fund), and a completion of the Enhanced Conditions Credit Line (ECCL) procedures still before the end of January," it said.

Technical extension

The document, drawn up by EU officials and obtained by Reuters from a source close to the talks, is expected to form a basis for ministers' discussions.

A technical extension would also allow the release to Greece of 1.9 billion euros of profits made by the European Central Bank on its purchases of Greek bonds under the Securities Market Program and the disbursement of another tranche of 3.5 billion euros from the International Monetary Fund's bailout for Greece, the document said.

"In this scenario, despite a longer availability period of the European Financial Stability Facility (EFSF) funds, the current program would be immediately followed by a precautionary credit line in a form of an ECCL once all the prior actions are fulfilled and a disbursement is made, thus providing to Greece a financial buffer if needed," it said.

The ECCL would be for one year, and could be renewed twice for six months each time. It would total up to 11.5 billion euros that are left in unused Greek bank recapitalisation funds provided by the euro zone.

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The document also considers extending the bailout only by three months to the end of the first quarter of 2015 and a possibility of an extension until the first quarter of 2016, to match the end of the IMF program.

"While a shorter extension carries a risk of being insufficient for completing all the necessary legislative actions, especially in the current political context in Greece, the longer one might be challenging to communicate as a purely technical extension," it said.

The preferred course of action therefore was that as soon as the lenders and the Greek government reach an agreement, "procedures would be launched to ensure a technical extension of the EFSF facility until end Q2 2015 (to be completed before end-2014) and to allow for the conclusion of the ECCL procedures by end-January, subject to fulfillment of the prior actions."

The IMF could also switch what remains of its bailout program for Greece into a precautionary credit line, the document indicated. But for this to happen, Greece and its international lenders need to reach an agreement on remaining reforms before the next meeting of euro zone finance ministers on Dec. 8 in Brussels, the document said.