The European Central Bank has joined the IMF and European Commission’s demand for “strong” and “credible” measures to alleviate Greece’s soaring public debt (around 178% of GDP) once the country exits its rescue programme on 20 August.
The Eurogroup meeting discussed on Friday (27 April) the building blocks of the final agreement to end Greece’s eight-year-long bailout programme.
The most controversial issue will be the debt relief that the creditors promised on various occasions in the past if Athens reformed its economy and if it was needed to avoid unsustainable debt levels.
The IMF has been the most vocal defender of debt relief for years. As the end of the programme nears, the Commission also spoke up in defence of “significant” debt measures.
On Friday, the ECB sided with its former partners of the troika and defended “strong and credible” debt arrangements for the country as an “essential part” of the final agreement, said its Executive Board member Benoit Coeure.
“The more frontloaded, automatic or less conditional, the more they can contribute to a confidence-building exercise” between Greece and the markets, he told reporters after the Eurogroup meeting.
His comments were a direct response to a choir of hardliners led by Germany, who want to keep Greece on a short leash while implementing any debt arrangement.
Eurozone finance ministers and the institutions did not discuss the debt issue during the Eurogroup meeting.
The Commissioner for Economic Affairs, Pierre Moscovici, admitted that further preparatory work is needed to calibrate how debt relief would be implemented once Greece exits its programme.
The lenders are finalising a mechanism that would link the future debt obligations to Greek economic output.
Moscovici agreed with Coeure in saying that the debt measures will be a “crucial part” of the overall agreement that Greece and the Eurozone creditors want to reach by 21 June to pave the way for the conclusion of the programme.
But Greece still needs to implement the outstanding 88 ‘prior actions’ to conclude the final review of the bailout scheme.
The experts of the institutions will return to Greece in mid-May in order to conclude a staff-level agreement with Athens in time for the next Eurogroup on 24 May.
“We have to speed up our work,” Moscovici said. Although he told reporters that it is “feasible”, he admitted there are “certain subjects that have to be tackled and some improvements to be made” in the implementation of the reforms.
At the Eurogroup meeting, Greek finance minister Euclide Tsakalotos presented the long-term growth strategy for his country, the other block of the final agreement.
The goal is to sustain the progress made during the bailout programme, during which €326 billion was provided by the eurozone partners and the IMF, and attract investors.
Despite its huge public debt, Greece is no longer as cash-strapped as it was a few years ago.
It does not need money to cover its financial gaps, recording a 4.2% primary surplus in 2017 before the payment of its debt obligations.
In addition, it can count on a cash buffer to cover at least a year of fiscal needs, primarily financed by the final transfer of the bailout scheme.
Another element yet to be decided is the post-programme supervision. In an interview with Financial Times, Tsakalotos said the country could receive quarterly missions to monitor the economic situation, compared to the twice-yearly evaluations for other rescued countries (Ireland, Portugal, Cyprus and Spain).
This stricter monitoring would satisfy the institution’s demands. Coeure underlined that post-programme arrangements should be “the stronger, the better”.
As of 21 August, if Greece opts for a ‘clean exit’, “what has so far been a conversation between the Greek government and the institutions and the Eurogroup, will become a conversation between the Greek government and the markets, which is a quite different discussion”, Coeure warned.