Greek Creditors, IMF Seek to Bridge Split Over Debt Relief

  • Euro-area finance ministers meet in Brussels over bailout
  • Creditors still disagree on Greek economic, budget outlook

Euro-area finance ministers gathered in Brussels on Monday, seeking a compromise with the International Monetary Fund on debt relief for Greece that could signal the final act in the seven-year-old drama for the continent’s most indebted state.

The IMF is reluctant to participate in a bailout unless the euro area ensures the country’s 315 billion-euro ($355 billion) debt load is sustainable. Some nations like Germany that are resisting a change to Greece’s debt profile won’t release any new funds until the Washington-based fund joins the program. Athens needs the new aid installment before it has to repay about 7 billion euros to lenders in July.

“The starting positions are all rather wide apart,” French Finance Minister Bruno Le Maire told reporters before the gathering. “There’s a lot of work that needs to be done to bring the positions closer.”

The so-called Eurogroup meeting began after finance ministry deputies earlier in the day failed to resolve the outstanding issues, as disagreements between the IMF and Germany over Greece’s economic outlook and required debt relief persisted, according to two European Union officials with knowledge of the talks, who asked not to be identified because the discussion was private.

Eurogroup chief Jeroen Dijsselbloem, German Finance Minister Wolfgang Schaueble and the head of the IMF’s European Department tried to bridge their differences in a separate meeting before the start of the gathering, an EU official said. There was no significant progress though, the official added, asking not to be named, as the meeting was private.

“I hope that we will reach a solution today that ends this politically,” Schaeuble said on his way into the meeting. “We’re in a position to reach a political conclusion along the lines agreed in May of last year” that would allow for a “timely disbursement” of aid.

Additional debt relief is also necessary for the European Central Bank to include Greek bonds in its asset purchases program, which would ease the country’s access to bond markets. Last week, Greek lawmakers approved economic measures in the hopes of mollifying creditors, including pension cuts, tax hikes and other structural economic reforms.

A key issue of contention is the outlook for Greece’s economy after 2018, when the current bailout expires. The IMF has raised doubts about Greece’s ability to maintain such an optimistic budget performance for decades, while key creditors have been pushing for a more positive outlook. Less ambitious fiscal targets would increase the amount of debt relief needed.

“I urgently advise everyone, including the IMF, to stop the blockade, which is being upheld for political reasons rather than factual ones,” Austrian Finance Minister Hans Joerg Schelling told reporters.

Three Scenarios

Greece’s creditors are weighing three scenarios for easing the country’s debt burden which would lead to substantially different levels of relief.

The options, outlined in a German finance ministry letter to lawmakers obtained by Bloomberg, make different assumptions about Greece’s growth outlook and the primary surplus -- which excludes interest payments -- that the country will be able to maintain in the long run.

Under the first scenario Greece will grow at 1.3 percent in the long run and its primary surplus will be on average 2.6 percent of gross domestic product. This will bring the country’s debt-to-GDP below 60% in 2060, the document says. The second, more pessimistic scenario sees Greek debt reaching 226 percent of GDP in 2060, assuming growth of 1 percent and a primary surplus of on average 1.5 percent of GDP. The third scenario foresees a yet-to-be-determined solution somewhere in between.

The first scenario would see little or no need for debt relief, while the second one would require a generous restructuring of Greece’s debt burden.

Euro-area finance ministers committed last May to a set of potential measures to ease the repayment terms on Greek bailout loans after the end of the program in 2018, but the degree to which these measures will be implemented is still a subject of contention.

Among the options listed is the extension of maturities on euro-area loans to Greece, as well as the capping and deferral of interest payments. The IMF has said it wants these options to be specified further, so that numbers “add up” and annual Greek debt refinancing needs are kept below clearly defined thresholds.

— With assistance by Alessandra Migliaccio, Sotiris Nikas, Nikos Chrysoloras, Fabio Benedetti Valentini, Marcus Bensasson, Birgit Jennen, Helene Fouquet, Stephanie Bodoni, Joao Lima, Corina Ruhe, Jonathan Stearns, and Zoe Schneeweiss

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