BRUSSELS: Eurozone finance ministers on Monday (Dec 5) approved new debt relief measures to relieve Greece’s colossal debt mountain in the wake of its huge 86-billion-euro bailout, but at levels far short of those demanded by the IMF.
“The Eurogroup endorsed today the full set of short-term measures” including extending the repayment period and an adjustment to interest rates, the eurozone’s 19 finance ministers said in a statement.
The ministers accorded Athens the small measures to reduce Greece’s debt as a reward for completing the latest round of reforms demanded in the country’s massive bailout programme – its third since 2010.
“We will start implementing them in the next weeks,” said Klaus Regling, the head of the European Stability Mechanism, the eurozone’s bailout fund.
However the ministers refused to officially sign off on the bailout’s second review as expected, telling Athens that there still remained a few open questions on Greece’s reform efforts.
The talks were marred by a row with the International Monetary Fund, as Europe and the fund remain as far apart as ever on the level of need for debt relief measures.
This is a crucial demand for the fund to back the bailout programme in which for now it plays only a technical role.
The hardline stance on debt relief by the ministers, led by Germany’s powerful Wolfgang Schaeuble, comes as key elections approach next year in Germany and the Netherlands, where bailout fatigue is running rife with voters.
ON COURSE FOR THE €315 BILLION DEBT
The IMF played a major part in two earlier rescues for Greece but baulked at the €86-billion third rescue in 2015 because it said Athens would never get back on its feet unless its mountain of debt was cut outright.
The so-called “short-term” measures announced by the ministers crucially do not include reduction of the face value of the debt, an idea that is firmly opposed by the eurozone governments.
Instead, the highly technical measures include extending maturities on certain loans and locking in the interest rate on some debt that risks future interest-rate increases.
“It’s very important for all sides, including the IMF, to not jeopardise this progress with increased uncertainty,” said Greek Finance Minister Euclid Tsakalotos.
Already huge, Greece’s debt is on path grow to €315 billion (US$334 billion) or around 180 per cent of output this year, according to the latest EU data.
The issue turns on a key figure – 3.5 per cent, the primary balance, or the surplus on the public finances before debt repayments, that Greece is supposed to reach.
The target is very high – and most countries do not even come close – but Germany believes it is the only way to solve the Greek issue once and for all and wants Athens to keep the pace for 10 years after the end of the current bailout in 2018.
“Some have argued for three years, some for five and some for 10,” Eurogroup head Jeroen Dijsselbloem told reporters after the talks.
“In all those situations serious structural reforms are necessary to reach that 3.5 per cent and maintain it for some years,” he added.
For the IMF, that option is totally unrealistic – an economy with an already unsustainable debt burden cannot be expected to tighten the screws further.