BRUSSELS: Eurozone finance ministers on Tuesday take up where they left off last week -- bogged down in Greece's bailout quagmire and facing a serious split with the International Monetary Fund over a key debt reduction target.
IMF head Lagarde, who clashed openly with Eurogroupe head Jean-Claude Juncker when they last met, says the gathering is crucial to getting stricken Greece back on its feet and its debt mountain cut sharply to sustainable levels.
"It's a question of ... making sure that we focus on the same objective, which is that ... Greece can operate on a sustainable basis," Lagarde said on Friday.
At the November 12 meeting, Juncker said that he was in favour of giving Greece an extra two-years, to 2022, to get its accumulated debt down to 120 percent of gross domestic product, sparking an immediate reaction from Lagarde.
The overall debt target agreed in the Greek bailout should remain at 2020, she insisted, adding: "We have differences; we are working, trying to resolve them."
Greece's debt burden is nearly 180 percent of GDP and expected to rise to 190 percent by 2014. That is about three times the EU 60 percent limit and way beyond what it can support, meaning it has to be reduced one way or the other.
Under the current bailout, private sector creditors agreed to write-off 100 billion euros of Greek debt and it has been suggested that now the official creditors should do the same, an option both the IMF and ECB rule out.
The IMF cannot extend more aid to countries whose debt is classed as unsustainable. The ECB meanwhile cannot accept a write-down as to do so would mean in effect that it was giving a government direct financing, which its rules forbid.
That is not the only problem.
Under its bailout, Greece was supposed to steadily reduce its public deficit -- the shortfall between government revenue and spending -- to the EU limit of 3.0 percent of GDP by 2014 but last week's meeting agreed a delay to 2016.
That, however, produces a financing gap of nearly 33 billion euros as the targets are spaced out, which has to be covered by governments wary of giving any more to Greece and under pressure to cut their own spending at all costs.
The immediate issue is approval of about 31 billion euros in long-delayed aid funds after Greece adopted a tough new austerity package and 2013 budget, as required by its creditors -- the EU, IMF and the European Central Bank.
One senior EU diplomat said that ministers were "heading for an agreement but a staged agreement, part now, part later. Probably look at the 14th and 16th of next month."
Last week, Greece raised enough funds in one-month bills to cover debt maturing on Friday but it has more payments due, and of course in mid-December it will also have to find the money to cover the very bills it issued.
As Greece risks getting caught in this vicious cycle, the circumstances are not getting any better -- data on Thursday showed the eurozone back in recession for the second time in three years, with the problems spreading to traditionally stronger members such as Germany.
The downturn is startlingly sharp in Greece itself where the economy has shrunk by a fifth since the crisis broke and it now faces a sixth year in recession.
The backdrop then is not promising for Tuesday's meeting.
ING said in a note that it has to resolve the two issues -- how to bridge the financing gap and how to restore debt sustainability by 2020.
"Financing the funding gap can probably be achieved by lowering the interest rates on the current Greek loans and extending their maturities," ING said.
"Restoring debt sustainability, however, should be more complex and the issue of a public sector (debt) haircut is still on the table.
"While these public sector haircuts are still politically unacceptable for most Eurozone governments, it seems to be the IMF's preferred option," it argued.
On Thursday, the IMF made the point clearly, saying it was up to Europe to reduce Greece's debt, insisting it would not contribute more to the bailout.
It is "120 by 2020," IMF spokesman Bill Murray said.
"To get Greece back on a path of growth and job creation ... you have to lower its debt-to-GDP ratio in a significant way."