Euro Area Douses Tsipras’s Debt Hopes After Greek Bonds Rally

  • 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 dealt a blow to embattled Greek Prime Minister Alexis Tsipras’s chances of staying in power, signaling he won’t get the debt-relief commitment he’s promised voters for another year at least.

Meeting in Brussels on Monday, the euro region’s finance chiefs poured cold water on Greek hopes for a pledge to ease their debt burden this year. With governments determined to stop Greece becoming an issue in election campaigns in the Netherlands, France and Germany next year, their stance means the request may not get a hearing until October at the earliest.

Greece’s debt mountain is still more than 170 percent of its economic output even after imposing more than 100 billion euros ($110 billion) in losses on private-sector lenders in 2011, the biggest write-off in history. While the International Monetary Fund is demanding a commitment to concrete and quantified relief for Greece from 2018 before it will consider making any further aid loans, the euro area has made little progress beyond the technical work on short-term interest-rate protection.

“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,” Dutch Finance Minister Jeroen Dijsselbloem, who leads the meeting of his euro-area counterparts, said after the meeting. “We cannot give full clarity of what is needed, it is simply too early.”

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,” said Nicholas Economides, professor of economics at Stern School of Business, New York University.

Greek bonds rallied earlier on Monday after Tsipras reshuffled his cabinet in an effort to turn around his political fortunes. Greece’s 1.5 billion euros of 3 percent notes due in February 2026 rose 2 cents on the euro to 75.9 cents, the highest since May 30, according to data compiled by Bloomberg.

Debt Relief

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. 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.”

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.”

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.

“My personal view is that we need the IMF as an advisory body, that is important,” Slovak Finance Minister Peter Kazimir told reporters as he left the meeting, adding that it wasn’t crucial for the IMF to provide financial support. “At the end of the day, for me, for my country, what is crucial is that the IMF must be on board as a watchdog.”

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