- Euro-area finance ministers discuss Greece's debt burden
- Greek creditors wrangle over budgetary contingency measures
The euro area stepped up its bid to unlock aid for Greece by seeking International Monetary Fund backing for a plan to impose extra austerity on the nation if it misses budget projections.
Euro-area finance ministers meeting in Brussels on Monday also outlined their most concrete plans yet for Greek debt relief in the bid to entice the IMF to participate in the rescue package. Technical talks on the deal will now resume before finance chiefs reconvene in two weeks in an effort to finalize negotiations.
“I’m carefully optimistic that it can be ironed out within the next two weeks,” Finnish Finance Minister Alexander Stubb said after the meeting. “To be quite blunt, for a country like Finland it would be very difficult to move forward without IMF participation.”
The IMF has been insisting that Athens legislate additional austerity measures that would be automatically triggered in the event the country misses certain budget targets, a request Greek Finance Minister Euclid Tsakalotos has said isn’t possible. The IMF and the euro area must resolve the issue before they can disburse more aid, which is needed before Greek bonds held by the European Central Bank come due in July.
After Monday’s meeting European creditors said they would allow Greece to legislate a “mechanism” for additional austerity measures worth about 3.5 billion euros ($4 billion) in case the nation strays off budgetary track. The Washington-based IMF has until now taken a stronger line, demanding that these steps be legislated in advance.
The need for these extra steps stems from a clash between the IMF and the euro area. While euro officials consider Greece’s existing commitments are adequate to reach a targeted budget surplus before interest payments of 3.5 percent of gross domestic product in 2018, the IMF projects that current Greek measures will produce an excess of just 1.5 percent.
“We’ll not make them legislate specific measures upfront, we’ll ask them to legislate the mechanism,” Dutch Finance Minister Jeroen Dijsselbloem, who chaired Monday’s meeting, told reporters. “The approach was agreed and supported by the IMF today in the meeting.”
Greece and its international creditors are putting in place various elements of an aid-disbursement plan that should be able to be approved at the next scheduled meeting of euro-area finance ministers, Greek Finance Minister Euclid Tsakalotos said.
The IMF understands that “we can only do what is legally possible,” Tsakalotos said. “There is every expectation that all these jigsaw pieces will come together by May 24.”
The finance ministers for the first time discussed how to ease Greece’s debt burden without cutting the principal amount of those obligations. Debt relief, which can’t happen until Greece completes its bailout review, would reassure investors that its economic fortunes had turned a corner
Greece’s debt may be 104.9 percent of gross domestic product in 2060, under a baseline scenario, according to an analysis prepared by the euro-area creditor institutions. It may rise to as much as 258.3 percent by 2060 or fall to as low as 62.6 percent of GDP under different scenarios, according to the document obtained by Bloomberg News.
Debt relief would give a boost to Greek Prime Minister Alexis Tsipras, who ran for office with promises to oppose extra austerity and has just a three-seat majority in parliament. If the euro area and IMF can’t reach a deal, Tsipras may be tempted to call snap elections or a referendum -- as he did last year when Greece came close to falling out of the euro area.
“We’ll discuss when, if, under what circumstances” debt relief can take place, said Dijsselbloem. “The next week or weeks, we need to work on the technicalities of possible debt measures and then we’ll meet again on the 24th.”