Eurozone to mull Greek debt relief once reforms take place

Cancel Greek Debt campaign projection on German's UK embassy. London, July 2015. [Global Justice Now/Flickr]

Eurozone governments will consider medium-term debt relief for Greece as promised in a statement in May 2016 once Athens implements the reforms it agreed to earlier this week, a eurozone official said on Thursday (4 May).

Eurozone deputy finance ministers and treasury officials in the Euro Working Group (EWG) met on Thursday in Brussels to discuss a deal struck by Greece and eurozone governments on tax and pension reforms on Tuesday morning, which paves the way for talks on more debt relief.

“The EWG welcomed the preliminary agreement reached between the institutions and the Greek authorities on a policy package,” said the eurozone official with direct knowledge of the talks.

IMF says EU still needs 'credible' debt relief for Greece

Despite an agreement reached Tuesday (2 May) on a reform package, Europe still needs to provide “credible” debt relief to Greece before the International Monetary Fund can provide more financing, an IMF official said.

The EWG prepares meetings of the Eurogroup, or eurozone finance ministers. The next Eurogroup is scheduled for May 22 and could decide, if negotiations go smoothly, on debt relief for Greece, which has a public debt of 180% of GDP.

“Following the implementation of the prior actions by Greece, the Eurogroup could endorse the policy package and the terms of the next disbursement and address the sustainability of Greek debt in the near future, on the basis of the May 2016 agreement,” the official said.

The Eurogroup agreement from May 2016 says that Greek gross financing needs should be below 15% of GDP after 2018 for the medium term, and below 20% of GDP later.

Eurogroup’s Greece deal ‘beneficial’ for all sides

The deal reached at Tuesday’s Eurogroup meeting (24 May) “politically benefits all sides”, diplomatic sources close to the negotiation have told

If Greece fully implements reforms agreed with lenders under its third bailout, eurozone governments, which hold almost two-thirds of Greek debt, agreed last year to buy back more costly loans Greece took from the International Monetary Fund.

They also agreed to transfer the profits made from a portfolio of Greek bonds bought by eurozone national central banks back to Athens and, if necessary, extend the weighted average maturities and grace periods to keep the gross financing cost below 15% of GDP.

But such debt relief, which could be promised in more binding terms on 22 May, would still depend on Greece delivering on its reforms by mid-2018 and a debt sustainability analysis that would show Athens needs the debt relief to make its debt sustainable.

Greece, lenders reach long-awaited deal on bailout reforms

Greece and its foreign creditors reached a deal early today (2 May) on a package of bailout-mandated reforms, Greek Finance Minister Euclid Tsakalotos said, paving the way for the disbursement of further rescue funds.

Conflicting reports

The statement from the EWG came after Handelsblatt reported that Greece’s international lenders were preparing possible debt relief for Athens for discussion by the finance ministers.

The European Commission, the ESM eurozone rescue fund, the European Central Bank and the International Monetary Fund (IMF) had prepared various debt measures in a document to be sent to the Eurogroup for further discussion, it said, citing people familiar with the document.

One option was for the ESM to take over loans paid out by the IMF. The advantage would be lower interest rates charged by the ESM.

Others included extending debt maturities and having the ECB and national central banks send profits made on Greek bonds to Athens through national governments, Handelsblatt reported.

An EU source told Reuters the document was originally a paper by the ESM, not all four institutions, and had been modified on the way to the version Handelsblatt saw.

“It lays down several options for the restructuring of Greek debt and specifies possibilities which were given by the Eurogroup last May. One of the options still is that ESM would take debt from IMF,” the source said.

“It is not clear yet if the IMF would agree on that.”

The Handelsblatt report drew a strong rebuke from the German finance ministry, which told Reuters “no debt relief is being prepared”.

Regarding possible debt measures, a clear agreement was reached by the Eurogroup of eurozone finance ministers last May, it pointed out.

“According to that, after the full implementation of the adjustment programme, there will be an assessment of whether debt measures are necessary. That still applies,” the ministry said.

Greece's lenders shift from austerity to reforms

The Eurogroup took a small step on Monday (20 February) towards the completion of the second review of Greece’s €86 billion rescue programme, placing the emphasis on reforms over austerity to reduce the country’s huge debt pile.

  • 22 May: Eurogroup meeting to discuss possible debt relief for Greece

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