Finance ministers from the 17 euro countries agreed Friday to pay Greece its next batch of bailout loans, avoiding a potentially disastrous default, but acknowledged the country's debt remained too high.
Greece's debts are only one piece of Europe's economic puzzle, and the ministers were meeting in Brussels to address two more complicated — and arguably more important — issues: boosting the financial firepower of the eurozone's 440 billion euro ($607 billion) bailout fund to keep the larger economies of Italy and Spain from spinning out of control and forcing weak banks to boost their capital buffers as a defense against market turmoil.
Greek Finance Minister Evangelos Venizelos welcomed the news that Athens would get the next 8 billion euro ($11 billion) installment, calling it a "positive step." A day earlier, Greek lawmakers approved new, deeply contentious austerity measures.
The new measures will ensure next year's fiscal targets are met and "sets the basis for the necessary structural reforms," he said.
"The great sacrifices of the Greek people and the implementation of tough but nationally necessary rescue measures are the basis not only for the sixth tranche, but for the new program that will ensure the long-term viability of the Greek public debt," Venizelos said.
The loans, which still need the approval of the International Monetary Fund, should be delivered during the first half of November. The money will keep Greece afloat for a little longer, but most economists agree that the country also needs a substantial cut to its debt load. The finance ministers said they were looking at ways to do that, including imposing bigger losses on the banks that hold Greek bonds.
If those debts aren't reduced, Greece won't be able to raise money on financial markets for another decade, according to a new report by the country's international creditors.
A person familiar with the report said a deal reached with banks in July to give Greece easier terms on its bonds would leave it with a debt of 152 percent of economic output in 2020.
The person spoke on condition of anonymity, because the report is confidential.
A German official said earlier that Berlin was now pushing for a new deal with Athens' private creditors that would reduce Greece's debt to some 120 percent of GDP by 2020.
While eurozone officials try to figure out how to help Greece out of its debt hole, they are also trying to ensure that Spain and Italy don't find themselves in the same situation. The eurozone doesn't have enough resources to bailout those larger economies, so it has to act before Rome and Madrid find themselves unable to borrow as Greece, Portugal and Ireland have.
Increasing the effectiveness of the bailout fund, or European Financial Stability Facility, is meant to offer that protection, but Germany and France disagree over how to do that.
The delays have derailed leaders' promises to have an overarching plan to beat a path out of the crisis by a summit on Sunday. A second summit has now been scheduled for Wednesday, after a second eurozone finance ministers' meeting is likely to be held Tuesday.
Markets appeared to be giving Europe the benefit of the doubt, with stocks and the euro trading substantially higher on Friday.
"Once we have the option for the leveraging (of the EFSF) then — building on that — we can develop all other points," said Austrian Finance Minister Maria Fekter, as the arrived for the meeting in Brussels.
Governments have ruled out increasing their financial commitments, but they acknowledge that with some euro140 billion already going to Ireland, Portugal and Greece, the EFSF isn't big enough to both help recapitalize weak banks and keep big economies like Italy and Spain from being dragged into the crisis.
Austria's Fekter said up to seven technical options for giving the EFSF more leverage were currently on the table and both she and German finance minister Wolfgang Schaeuble ruled out the possibility that the fund will be able to tap into the vast resources of the European Central Bank. That proposal is still being pushed by France, which sees ECB help as the best way of giving the EFSF the necessary force.
The German official said that a combination of two options had crystallized as the most likely solution.
The first would involve the bailout fund acting as an insurer for bond issues from wobbly countries like Italy. That would essentially compensate investors against a first round of losses and support the bonds' prices, keeping governments' borrowing rates from rising too far.
In addition, the International Monetary Fund — which has already provided about a third of the bailout cash for Greece, Ireland and Portugal — would supply other stragglers with precautionary credit lines to make sure they have ready access to cheap money.
Last weekend, at a meeting in Paris, the finance chiefs from the Group of 20 leading economies opened the door for a larger role by the IMF, but only if the eurozone first does its part.
IMF Managing Director Christine Lagarde, who joined the ministers in Brussels Friday, said her institution would do everything it could to help Europe.
"We will find solutions," she said, without going into details.
Europe's leaders have already told their counterparts in the G-20 that they will have a plan ready to present to them at their next meeting in Cannes, France, in early November.
But Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said the announcement to delay all decisions until the next summit on Wednesday looked "disastrous" to the outside world.
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