EU Leaders Weigh Greek Debt Relief as Second Step in Aid Talks

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Still Major Stumbling Blocks Ahead for Greece: Diebel

Euro-area leaders said talk of debt relief for Greece is possible once the nation resolves the immediate financing dispute with its creditors.

Easing Greece’s massive obligations won’t be decided in coming days and will instead come later in aid negotiations, French President Francois Hollande told reporters after a Brussels summit on Monday. He said creditors should commit to discussing debt changes as a “second step” after an agreement on Greece’s budget, economy and near-term financing is achieved in coming days.

German Chancellor Angela Merkel took a similar line. While a third aid program is off the table for now, debt sustainability is part of the aid talks, she said.

“As far as the question of Greece’s ability to finance itself and its debt sustainability, this wasn’t discussed in detail, but it became clear that this question of being able to finance itself must be part of the deal,” Merkel told reporters after the meeting.

The euro area said in 2012 that it might ease terms on some existing loans if Greece fulfilled its rescue conditions. For Prime Minister Alexis Tsipras to take advantage of those pledges, he’ll have to show his government has taken steps to fulfill its bailout obligations.

Aid Agreement

As Monday’s summit took shape, leaders weighed how to present a renewed commitment to debt relief as part of talks on Greece’s bailout, according to officials familiar with the discussions. France wants follow-on rescue arrangements to be part of any deal on how to handle the current program, the officials said.

Greece will insist on a debt-relief component of any aid agreement, a Greek government official told reporters in Brussels. At the same time, the Greek official said, Greece is open to considering any type of debt arrangement that would pass muster with creditors.

Maltese Prime Minister Joseph Muscat said the outlines of the debt talks are already in focus.

“There is a commitment towards the realization of restructuring the Greek debt,” Muscat said in an interview after the summit. Haircuts would seem to be off the table, while three things on the agenda are the maturity of the debt, the grace period for no interest and the reduction of the coupon, he said.

Hollande said debt changes are a question for future years, as the priority shifts to Greece’s down-to-the-wire negotiations with creditors over aid that expires on June 30.

“On the lengthening of maturities, or re-profiling of the debt, it can only be done in a second step,” Hollande told reporters after the summit. “It needs to be indicated as a forthcoming step but it’s not in the coming days.”

Eurogroup President Jeroen Dijsselbloem said last week in Luxembourg that finance ministers hadn’t yet discussed any new proposals for easing Greece’s liabilities. On the question of previously discussed debt relief, “the promise we made at the end of 2012 is still valid,” he told reporters.

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