The European Commission published its assessment of Greece’s bailout request on Wednesday (15 July), saying it ruled out a “write-down” on Athen’s debt, but could consider a “reprofiling” with extended payment periods.
Germany has long resisted a debt write-down. But an IMF study published on Tuesday (16 Juy) shows Greece needs far more relief than EU governments have so far contemplated.
The IMF study said European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension. If not, it said, they must make annual transfers to Greece or accept deep haircuts (reductions) on existing loans.
British Prime Minister David Cameron backed the IMF assessment on Wednesday, saying Greece needed to be granted relief from its debts.
Yesterday’s move by the Commission can be seen as a middle way between the IMF’s bold proposals and Germany’s tougher line.
In its assessment, the Commission ruled out a debt write-off but said a “reprofiling” was possible if Greece implemented reform measures demanded by its creditors.
“The concerns could be addressed through a far-reaching and credible reform programme, very strong ownership of the Greek authorities for such a programme and, after full restoration of the loans agreements, debt-mitigating measures that would be granted only once the commitments to reform from the Greek authorities has been demonstrated,” the EU executive said.
“A very substantial re-profiling, such as a long extension of maturities of existing and new loans, interest deferral, and financing at AAA rates would allow to cater for these concerns from a gross financing requirements perspective, though they would still leave Greece with very high debt-to-GDP levels for an extended period,” the Commission said.
Earlier, Berlin said it could consider letting Greece pay off its debt over a longer time but only if this does not amount to a backdoor way of reducing what it owed.
Asked about the option of extending maturities, German Finance Ministry spokesman Martin Jaeger said: “Technically, this possibility exists,” adding it could be considered.
“But it will not be the solution if it leads to a significant reduction in the cash value (of the debt) as then we would in the end have nothing other than a debt haircut via the backdoor,” he said. Jaeger added that Germany took the IMF’s analyses “very seriously”, but said Berlin still believed debt sustainability could be achieved in Greece through structural reforms and economic growth.
European Commission Vice-President Valdis Dombrovskis said that Greek debt sustainability, while a serious concern, should be seen more in terms of what burden it presented to the economy than in terms of the more abstract debt-to-GDP ratio.
The cautious German stance comes as an attempt to reassure lawmakers sceptical about talks with Athens ahead of a vote on Friday.
Greece’s leftist Prime Minister Alexis Tsipras agreed to tough reforms after 17 hours of gruelling negotiations in return for a three-year bailout worth up to €86 billion.
If approved, this will be the third rescue programme for Greece in five years. It will be managed by the European Stability Mechanism (ESM), the eurozone permanent crisis resolution fund that was initially set up five years ago in an effort to save Athens from bankruptcy.
“There won’t be a Grexit,” said Jean-Claude Juncker, the President of the European Commission after all-night discussions came to a close on Monday 9:00 AM Brussels time.
- European Commission: Press release (15 July 2015)