Greek Short-Term Debt Relief in Jeopardy as Bailout Stallsby and
Europe’s stability fund reacts to government spending
Dijsselbloem aide says actions ‘not in line’ with accords
Hopes for a quick resolution to Greece’s bailout review faded after Europe’s stability fund froze short-term debt relief measures that would have eased the nation’s payment obligations.
Following an announcement by Greek Prime Minister Alexis Tsipras that he will spend more on pensions and sales-tax relief, the European Stability Mechanism’s governing bodies put their short-term debt relief decisions for Greece temporarily on hold, a spokesman for the euro area’s crisis fund said in an e-mail on Wednesday. The spokesman asked not to be named in line with policy.
“The institutions have concluded that the actions of the Greek government appear to not be in line with our agreements,” Michel Reijns, spokesman for Eurogroup Chief Jeroen Dijsselbloem, said in an e-mailed statement. “Some member states see it this way also and thus no unanimity now for implementing the short-term debt measures.”
Euro-area finance ministers on Dec. 5 agreed to the short-term measures, which include easing the repayment schedule of bailout loans and swapping debt to mitigate interest-rate risk, while insisting Tsipras’s government adopt more reforms to ensure the nation maintains a proper fiscal record after the end of its current bailout. However, the International Monetary Fund, which wants Greece to lower its tax-free threshold and cut pensions further, said the new relief measures aren’t enough to put Greece’s debt on a sustainable path.
Greek stocks and bonds fell on Wednesday, with the Athens Stock Exchange index dropping 3.2 percent and the yield on benchmark 10-year government bonds rising 28 basis points to 7.08 percent.
The Greek government mustn’t take one-sided steps, and the program can only succeed if all parties adhere to previous agreements, German Finance Ministry spokeswoman Friederike von Tiesenhausen told reporters in Berlin on Wednesday.
“The government’s measures seem to have created some temporary bad blood,” said Thanassis Drogossis, head of equities at Athens-based Pantelakis Securities. “The latest intervention by the Commission, IMF and German Ministry of Finance are a clear sign that the parties involved are shoring up their maximalist positions ahead of a tough negotiation about the post-2018 surplus targets.”
The three-way spat between the Greek government, its euro-area creditors and the IMF over the country’s primary budget surplus targets, the extent of its structural reforms and how much debt relief to grant has overturned earlier investor optimism that the country would speedily complete its bailout review this year.
Amid this standoff, Tsipras announced on Dec. 8 that the government will spend its primary budget surplus in excess of its bailout target raising pensions for those most in need and freezing a planned sales tax on islands in the east Aegean most affected by the refugee crisis.
Tsipras said on Wednesday that his government’s actions are consistent with the bailout agreement, in comments cited in Avgi newspaper. Creditors must respect the sacrifice that Greeks have made for Europe in the past seven years, Avgi cited him saying.
Officials representing Greece’s creditor institutions -- the ESM, the European Commission, the European Central Bank and IMF -- are assessing the impact of the government’s decision on the country’s bailout program commitments and targets, the ESM spokesman said on Wednesday.