Eurozone hopes for Greece debt deal on 24 May

Jeroen Dijsselbloem [European Council]

Eurozone finance ministers yesterday (9 May) gave themselves until 24 May to reach a deal on debt relief and unlocking bailout cash for Greece as they lauded Athens for passing tough reforms.

The 19 ministers meeting in Brussels failed to sign off on the long-delayed first review of last July’s €86-billion EU-IMF bailout — but said this could be done in the “coming days”.

Eurogroup chief Jeroen Dijsselbloem said that the Greek parliament’s approval of fresh reforms in a tense vote late Sunday “paves the way for successful completion of the first review” of last July’s bailout.

Greece adopts more austerity reforms ahead of key Eurogroup talks

Greek lawmakers adopted a controversial package of pension cuts and tax hikes as eurozone finance ministers geared up for an emergency meeting today (9 May) to hammer out fresh reforms for Athens to stave off another eurozone crisis.

Greece hailed the meeting in Brussels as clear victory for Athens even though it ended without any official decision to grant bailout cash or decide debt relief.

“Greece is turning the page … the vicious circle is over,” said Greek Finance Minister Euclid Tsakalotos after the talks.

“Greece has been given the green light that the programme is on track,” he added.

A EU official told EURACTIV that the lack of result of the Europe Day meeting was “not a tragedy”.

No Eurogroup result ‘not a tragedy’, EU official says

If the Eurogroup meeting today (9 May) does not produce any specific results “it’s not going to be a tragedy”, an EU official told EURACTIV Greece.

The government of Prime Minister Alexis Tsipras is eager to win the green light from its creditors to unlock much-needed cash from the bailout, to avoid defaulting on huge debt payments this July.

Also left unresolved on Monday were the deep divisions between the eurozone and the International Monetary Fund, which has threatened to pull out of the bailout if Greece does not get relief for its huge mountain of debt.

‘Cherish IMF’

Several powerful eurozone members, led by Germany, insist the IMF remains part of the bailout, as they do not trust EU officials to maintain a tough line on Athens.

“There’s a number of member states, actually quite broad, that cherish IMF participation,” Dijsselbloem said when asked if the fund could leave the bailout.

But it is acknowledged that debt relief is key to the IMF’s continued role and Dijsselbloem said European and IMF officials would work on the issue ahead of the next meeting of finance ministers on 24 May.

German Finance Minister Wolfgang Schäuble, the Eurogroup’s most influential member, was optimistic of a deal in time for the next meeting, despite his own strong opposition to debt relief.

“I am still confident of finding a solution in May,” he said.

Also on the table is a demand to Athens for extra reforms in case it misses its spending targets in 2018.

These so-called “contingency measures” are another key requirement of the IMF, as the Fund is doubtful that Athens will meet the targets.

But Greece has said legislating reforms intended for 2018 is impossible, and Prime Minister Alexis Tsipras said the Eurogroup had accepted the Greek position.

“There is no demand that Greece legislate on contingency measures,” Tsipras said in a statement after the talks in Brussels.

Instead, the measures would only be decided if necessary and included “as part of (Greece’s) regular budgetary process”, the Eurogroup said in a statement.

Greece is due to repay big loans to the European Central Bank (ECB) and IMF in July, and has already fallen behind in paying for everyday government duties and public sector wages.

The finance ministers’ meeting followed days of protests in Greece, where tens of thousands took to the streets again to slam the unpopular reforms adopted late Sunday (8 May) which reduce the country’s highest pensions and raise taxes.

The measures were passed thanks to the government’s slim majority in the 300-seat parliament, with the coalition’s far-left Syriza party voting in favour of the measures despite fears of dissension.

In the run-up to the vote, angry unions staged a general strike that paralysed public transport, while some 26,000 people took to the streets of Athens and Greece’s second city, Thessaloniki.

Greek debt analysis

There are serious concerns about the long-term sustainability of Greek debt, a document prepared by the European Stability Mechanism (ESM) for the Monday talks says.

According to the paper, Greece’s economic growth would be 3.1% in 2018, 2.8% in 2019, 2.5% in 2020, 1.5% in 2025 and 1.3% from 2030 to 2060.

In this scenario, Athens would maintain a 3.5% of GDP primary budget surplus from 2018 until 2025. After that, it would start declining to stay at 1.5% in 2040-2060.

Based on the ESM document, eurozone deputy finance ministers will work on various debt relief steps for Greece over the next two weeks and present their findings to eurozone finance ministers on 24 May.

If the main ESM scenario were to prove accurate, the eurozone, Greece’s main lender, could achieve Greek debt sustainability through three actions:

  • The extension of the maximum weighted maturity by 5 years to 37.5 years.
  • A re-profiling of the amortisation scheme by setting loan repayments as 1% of GDP until 2050 and linearly amortised after that.
  • A capping of interest charged to Greece at 2%, with any interest that would have been payable in excess of the 2% being deferred until 2050. The accumulated and capitalised deferred interest would then be repaid in equal installments.

The document also said that possible other measures included returning to Athens profits generated by the European Central Bank on its Greek bond holdings until 2026, which would add up to around €8 billion.

Another possible measure could be to repay Greece’s loans to the International Monetary Fund early, because they are much more expensive than ESM loans.

The ESM could buy out the IMF loans using unspent money from the Greek bailout, because the fund spent some €20 billion less than expected on Greek bank recapitalisation.

The ESM assumed in its analysis that the IMF would disburse €6 billion to Greece under the next bailout, taking the total Athens would owe the Fund in 2018 – at the end of the bailout – to €17.6 billion.

The debt analysis said that in this scenario, Greece’s annual debt servicing costs could remain below 15% of GDP until the late 2030s, and below 20% afterwards.

“More adverse scenarios than the baseline one would require more far-reaching measures to attain debt sustainability,” the document said.

It said that subject to weaker growth and a faster decline in the primary surplus than in the base scenario, the eurozone would need to extend average maturities of loans to Greece by 10 years or more and combine that with the return of bond profits from the ECB and the IMF buyout.

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