UPDATE 2-ECB's Asmussen sees Greek aid deal covering 2 years

Madeline Chambers
Reuters Middle East

* Says should strike deal next week for 2013 and 2014

* Expects follow-up Greek aid will be necessary thereafter

* IMF wants comprehensive, permanent deal now

BERLIN, Nov 18 (Reuters) - European Central Bank policymaker

Joerg Asmussen said on Sunday the euro zone should agree next

week on two years of funding for Greece and leave further help

to be decided later, a view likely to irk the IMF, which wants a

permanent solution.

"We should next week settle the financing for the years 2013

and 2014, but you have to be honest and say we do not really

expect the country to have access to markets in 2015 and 2016;

that means a follow-up programme would be necessary," Asmussen

told German broadcaster ZDF.

A two-year deal would postpone a longer-term solution to the

Greek debt crisis until after a September 2013 German general

election, when it might be politically easier for Germany, the

EU's paymaster, to take tough decisions.

The International Monetary Fund (IMF), however, is unlikely

to welcome further delay.

Euro zone finance ministers and IMF Managing Director

Christine Lagarde meet on Tuesday to try to agree on how to make

Greece's debt manageable, an agreement that eluded them last


German Finance Minister Wolfgang Schaeuble said he was

banking on a deal.

"We must find a common line. We have to find it on Tuesday.

We are working intensively on this, and I think that we will

manage it," Schaeuble told ARD television.

Lagarde told Reuters late on Saturday that she would push

for a permanent solution to Greece's debts to avoid prolonged

uncertainty and further damage to the Greek economy.

IMF officials have argued that some writedown of Greek debt

held by euro zone governments is necessary to make Greece

solvent, but Germany, the biggest contributor to the bloc's

bailout funds, has repeatedly rejected the idea of taking a

loss, or "haircut", on such holdings, saying it would be


"It is a legal matter," Schaeuble reiterated. "You can't

guarantee credit and then take a haircut on the credit you have

guaranteed, that is ruled out."

In an article in Monday's edition of Handelsblatt, Klaus

Regling, head of the European Stability Mechanism (ESM) bailout

fund, said euro zone states would only take a haircut on Greek

debt in extremis.

"A public haircut is something totally extraordinary; it can

only happen in exceptional circumstances," he said.

Among ideas under consideration to plug the funding gap are

further reducing the interest rate and extending the maturity of

euro zone loans to Greece, an interest-payment holiday and

bringing forward loan tranches due at the end of the programme,

according to euro zone sources.

Asmussen told ZDF the problem was that loans alone did not

help as they raised the long-term debt.

"We must look for solutions which do not at the same time

raise the debt level of the country. That could, for example, be

buying back debt or reducing the interest on the outstanding

credit," said Asmussen.


In an unusually public airing of disagreement during a news

conference in Brussels on Nov. 13, Jean-Claude Juncker, who

chairs the Eurogroup of finance ministers, said the target of

reducing Greece's debt to 120 percent of gross domestic product

by 2020 should be moved by two years to 2022.

Appearing surprised by Juncker's statement, Lagarde

disagreed, insisting the target of 2020 should remain.

Under its standard procedures, the IMF cannot go on

disbursing loans unless an adjustment programme is fully funded

up to the end.

Euro zone ministers agreed on Monday to grant Greece an

extra two years, until 2016, to meet its fiscal targets.

Asked if he agreed with Asmussen that Greece would need

further aid, Schaeuble said a two-year extension would cost

more. "If that is what Asmussen meant, he is right," said


"The other problem is that by 2020 or 2022, Greece has to

have reached a level in terms of its overall debt that enables

it to get access again to the markets," said Schaeuble, adding

he did not know how much the whole cost would be.

German Chancellor Angela Merkel has to make sure any easing

of the conditions on Greece are palatable both to taxpayers

before next year's election and her coalition partners.

Horst Seehofer, the head of Bavaria's Christian Social Union

(CSU), which shares power with Merkel's conservatives, on Sunday

struck a more conciliatory tone than previously.

"If the Greeks need more time, you can talk to the CSU about

that," he told Bild am Sonntag newspaper.

"We must consider whether the alternative to a delay for the

Greeks would not cost significantly more money, for example via

a sharp rise in unemployment here," he said.

"The political art is to avoid a conflagration caused by a

Greek bankruptcy without giving up efforts to tackle its debt,"

he said.

Several CSU members have taken a tougher line, openly

talking about Greece's possible exit from the euro zone.

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