Euro Area Signals No Major Greek Debt-Relief Deal This Year

  • Medium-term relief may be pushed until after German elections
  • IMF’s role in bailout hinges on a euro-area debt agreement

Euro-area finance ministers signaled they may not give a commitment on significant debt relief for Greece before next year’s German elections, dealing a further blow to embattled Prime Minister Alexis Tsipras.

As the euro region’s finance chiefs met in Brussels on Monday, Germany’s Wolfgang Schaeuble led the officials pouring cold water on Greek hopes for a concrete pledge as early as next month on lowering the country’s debt burden in 2018. With governments determined to stop Greece becoming an issue in election campaigns in the Netherlands, France and Germany next year, their stance may push back the decision on easing repayment terms on bailout loans by a year.

The euro area has already agreed to measures to shield Greece from increases in interest rates and won’t discuss any further concessions until the current assessment of its bailout conditions has been completed, Schaeuble told reporters on his way into the meeting.“Not before.”

Greece’s debt mountain is still more than 170 percent of its economic output even after imposing more than 100 billion euros ($111 billion) in losses on private-sector lenders in 2011, the biggest write-off in history. While the euro area agreed in May to look at ways to chip away at the burden, they have made little progress apart from starting technical work on the short-term interest-rate protection.

Any decision on medium-term debt relief -- which would take effect in 2018 -- is significant because the International Monetary Fund has made that a condition of its participation in the current Greek bailout, agreed in 2015. The Washington-based lender has insisted Greece’s euro-area creditors must agree on concrete and quantified relief before it will extend any more loans to the bloc’s most indebted member. While the institution acknowledges that a nominal haircut on Greek bailout loans is implausible, it has demanded more concessionary repayment terms, including extensions of maturities and a cap on interest rates.

“Maybe next year is better timing politically,” Finnish Finance Minister Petteri Orpo said in an interview in Brussels. While the Greeks “have done very good work,” debt relief “is not possible right now. They have to do more.”

Tsipras’s Slide

Pushing the decision back a year could hurt Tsipras, who has staked his political capital on securing concessions from Greece’s creditors since coming to power in January 2015. Tsipras’s party, Syriza, is running 6 percentage points behind its main rival New Democracy with just 16 percent support, according to an Alco poll for Parapolitika newspaper, published Saturday.

“Postponement of debt restructuring and the possibility of a new -- fourth -- program would be huge political blows to the government, and they can lead to early elections,” Nicholas Economides, professor of economics at Stern School of Business, New York University, said.

Greek bonds rallied after Tsipras reshuffled his cabinet on Sunday in an effort to turn around his political fortunes. The yield on Greece’s 10-year benchmark note fell 33 basis points to 7.43 percent at 5:05 p.m. in Athens, the lowest since June 10.

Dutch Finance Minister Jeroen Dijsselbloem, who leads the meeting of his euro-area counterparts, said that while finance ministers may have to give some details about debt measures in order to satisfy the IMF at their next meeting on Dec. 5, but it was impossible to be explicit about their scope, he said.

“It is impossible to be precise on what the size of possible debt measures will be in the second half of 2018, it is simply impossible,” he said after the meeting. “We cannot give full clarity of what is needed, it is simply too early.”

Doubts about the sustainability of Greece’s debt load have kept it locked out of global bond markets for more than two years. Easier repayment terms on bailout loans is one of the conditions European Central Bank President Mario Draghi has set for including Greek government bonds in the ECB’s quantitative-easing program. But for now, the euro area can’t see much beyond the interest-rate protection that has already been agreed.

“There are short-term debt issues as well as medium- and long-term ones -- we’re focusing on the short term for now,” French Finance Minister Michel Sapin told Bloomberg en route to Brussels. “What we can do is solidify the low rates. We are working seriously on that.”

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