More time or tough love? Eurozone deadlocks over Greece debt deal.

For the second time in the past two weeks, the eurozone has failed to come up with a rescue plan for Greece which is on the verge of insolvency. Finance ministers of the so-called Eurogroup meeting in Brussels last night debated for 12 hours about the terms for an urgently needed loan tranche to Athens, but finally postponed a decision until next Monday.

Greece needs the next €31 billion (nearly $4 billion) of aid to buy back government bonds, due in mid-December, and to keep state authorities and public services working. Its international lenders, the European Union, the International Monetary Fund (IMF), and the European Central Bank (ECB) want to make sure that Greece is capable of servicing its debts before they release more aid, but they disagree on how the country should get to this point.

The EU wants to give Athens more time than previously planned. By 2022, rather than by 2020, Greece should have reduced its debt to what is perceived as a sustainable level of 120 percent of gross domestic product (GDP). Without further measures, the Eurogroup says, Greek debt would be 144 percent in 2020 and 133 percent in 2022.

The eurozone crisis, in 5 easy graphs 

The IMF insists on the 2020 deadline and is asking public lenders to write off a certain amount of debt. The ECB holds most of Greece’s obligations. But a "haircut" is strongly objected to by a number of European governments, namely the Germans. German finance minister Wolfgang Schäuble ruled out a debt write-off as “illegal.”

Eurozone leaders tried to play down the meeting’s failure. The talks were stuck on mere technicalities, said Jean-Claude Juncker, president of the Eurogroup. Steffen Kampeter, Germany’s deputy finance minister, echoed this assessment. “I would say we have covered 80 percent of the outstanding issues, and I’m confident that we can get a deal next Monday,” he says.

Mr. Kampeter confirmed the assertions by Greek officials that Greece has largely fulfilled the conditions set by its lenders.

“Greece has delivered not just on budget cuts, but also on structural reforms. It’s on the way out of the crisis,” says Kampeter.

But before lenders commit to new payments, they have to persuade their national parliaments that Greece’s progress is sustainable and that it will be able to pay back its debts.

This could prove difficult. Lawmakers in Germany are increasingly skeptical about the chances to avoid further costs.

“We should stop lying to ourselves and to our voters,” says Lars Lindemann, a lawmaker with the Free Democrats, the junior partner in Chancellor Angela Merkel’s coalition government. “We should be honest and say, yes, we’ll have to dig deeper into our pockets and accept another haircut or possibly even set up a third bailout package for Greece.” 

But with general elections in Germany coming up next September no party is keen to relay such messages to its voters.