Last updated: November 13, 2012 7:03 pm

Greece wins time on bailout impasse

International lenders were granted more time to resolve their differences over changes to Greece’s €174bn bailout when Athens managed to raise sufficient funds to make a €5bn debt repayment due this week.

Athens on Tuesday sold €4.06bn in one-month and three-month Treasury bills which, together with funds expected to be raised from non-competitive bids, should allow it to redeem bills coming due on Friday.

Fears about Greece’s public finances have been exacerbated by a deadlock between the International Monetary Fund and the EU over how to reduce the country’s overall debt – which resulted in a rare public spat late on Monday between Christine Lagarde, IMF chief, and Jean-Claude Juncker, head of the eurogroup of finance ministers.

Senior officials have vowed to find a compromise by next week to release €31.3bn in long-delayed aid payments but the sides remain far apart. The IMF is urging the EU to provide enough relief to get Greek debt to 120 per cent of economic output by 2020, a plan that would probably force eurozone governments to accept losses on their Greek bailout loans.

Among the options being considered by negotiators is lowering the interest rates on loans to below cost – essentially forcing eurozone lenders to take losses on the net present value of the loans without a full-scale restructuring – and extending repayment schedules well into the future.

Wolfgang Schäuble, German finance minister, on Tuesday said any “haircuts” on official loans were illegal under EU treaties but some eurozone officials hinted they might be open to “creative” measures involving interest rates.

There were signs the stand-off was becoming increasingly politicised, particularly in Germany, where opposition leaders insisted the IMF testify before the Bundestag to clarify whether Angela Merkel’s promises that there would be no more aid to Athens were credible.

“The chancellor has promised to keep Greece in the euro,” said Carsten Schneider, the Social Democrats’ budget spokesman. “Now she must finally say what this promise will mean in extra costs.”

Even as eurozone leaders dug in, IMF officials insisted the bailout’s overhaul would only be credible if debt targets were maintained. Paulo Nogueira Batista, IMF executive director for Brazil and 10 other countries, said the stronger public stance being taken by the IMF was a “welcome” development.

The Greek bill auction takes some of the pressure off IMF and eurozone leaders but the stand-off between the two international creditors appeared to unsettle financial markets.

Spanish 10-year bond yields rose to their highest levels in more than a month, approaching 6 per cent, before falling back by the close.

Additional reporting by Kerin Hope in Athens and Joe Leahy in São Paulo

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