EU Offers Greece Near-Term Debt Relief, Demands More Reforms

  • Regling says steps may cut debt by 20 percentage points of GDP
  • Debt measures ‘very promising,’ says Greece’s Tsakalotos

Is EU Debt Relief for Greece Too Little, Too Late?

Euro-area finance ministers agreed to measures that will help ease Greece’s debt burden, while insisting that the government of Prime Minister Alexis Tsipras adopt “serious” reforms that will ensure the nation maintains a proper fiscal record after the end of its current bailout.

Finance ministers from the currency bloc meeting in Brussels clinched steps that could cumulatively reduce Greece’s debt by 20 percentage points relative to gross domestic product through 2060, Klaus Regling, managing director of the European Stability Mechanism, said Monday. The measures include easing the repayment schedule of bailout loans, waiving a coupon penalty that would amount to about 200 million euros ($215 million) and swapping debt to mitigate interest rate risk.

A very good result for Greece “was that the short-term measures will begin from now,” Greek Finance Minister Euclid Tsakalotos told reporters after the meeting. “They are much more ambitious measures than we expected in May or hoped for, so that is very promising.”

However, the International Monetary Fund said the new relief measures aren’t enough to put Greece’s debt on a sustainable path. The IMF still believes Greece’s fiscal targets aren’t realistic, and therefore the Washington-based fund isn’t willing to commit to a new loan for now, an IMF official told reporters on the condition of anonymity.

Greece and its creditors are trying to enact steps that will assure the near-term sustainability of its debt, which is still more than 170 percent of its economic output, in order to entice the IMF to join the next round of financing. While creditors have ruled out nominal cuts to Greece’s obligations, the IMF has demanded concrete and quantified relief for Greece before it will consider further loans.

The Eurogroup agreement may bring little solace to Tsipras, after the finance chiefs requested that Greece adopt structural measures to maintain a budget surplus before interest payments equal to 3.5 percent of its GDP beyond 2018. Ministers also ruled out any further concessions to Greece before the second half of 2018.

“We all agree that serious structural measures will have to be put in place for the 3.5 to be met and sustained at least for some years,” said Dutch Finance Minister Jeroen Dijsselbloem, who also chairs the meetings of his counterparts.

Tsipras has been counting on debt relief to stem a popular backlash against the belt-tightening policies he agreed to last year. The former opponent of bailouts says such measures will allow the European Central Bank to include Greek bonds in its asset purchases program, thus paving the way for the continent’s most indebted state to escape the shackles of its austerity-attached loans program.

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