Greek Debt Deal Delayed as 15-Year Extension Fails to Lure IMF

  • Creditors target agreement by next euro area meeting in June
  • Euro area, IMF still disagree on relief measures required

Cyprus Finance Minister Says Almost There on Greek Deal

Greece’s creditors failed to resolve their differences over the measures required to bring the country’s debt back to a sustainable path, as a compromise offered by the eurozone wasn’t deemed sufficient by the International Monetary Fund.

Concessions put on the table at a meeting of euro-area finance ministers on Monday, including a potential extension of maturities on some bailout loans by up to 15 years, were not enough for the IMF to unequivocally say that Greece’s debt is sustainable, officials familiar with the discussions said, asking not to be named as the talks were private. In turn, the IMF’s reluctance was a deal-breaker for the Greek delegation, due to the implications for the country’s inclusion in the European Central Bank’s quantitative easing and the signal it would send to markets.

Euclid Tsakalotos, left, speaks with ECB’s Mario Draghi in Brussels on May 22.

Photographer: Jasper Juinen/Bloomberg

“The feeling was at the end of the meeting that more work was needed to get the clarity that the Greek people and markets would need to understand,” Greek Finance Minister Euclid Tsakalotos said on his way out of the meeting. “The proposed deal was transferring the solution to the future and didn’t reflect Greek people’s efforts,” Greek government spokesman Dimitris Tzanakopoulos told reporters in Athens on Tuesday.

Convincing the IMF to join the program is a condition for the disbursement of more aid by the euro area, as most governments in the bloc, including Germany, see the Fund’s participation as a guarantee for the credibility of the bailout. While having the IMF on board has repeatedly been mentioned by euro-area governments as a condition for additional funds, officials were less explicit on the point after Monday’s meeting, signaling that Greece may receive the next tranche of euro-area funds without having the Fund fully on board.

More debt relief is also necessary for the ECB to consider Greek bonds in its asset purchases program, which would ease the country’s access to bond markets.

While the International Monetary Fund accepts that additional debt relief for Greece doesn’t require final approval and “does not need to be calibrated to its last detail,” it still wants more clarity about what will happen after the current bailout expires in 2018, said Poul Thomsen, head of the IMF’s European Department. “We still think that there is a need for more realism in the assumptions and we think there is a need for a bit more specificity.”

The IMF didn’t see the draft proposals presented on Monday as explicit enough for the Fund to immediately resume co-financing of the lifeline keeping Greece afloat since 2010, the people familiar with the discussions said. An IMF spokesman declined to comment on the content of the compromises offered.

Negotiations will continue in the coming weeks with the aim of reaching a conclusion on June 15 at the next meeting of euro area finance ministers, according to Jeroen Dijsselbloem, the Dutch finance minister who presides over meetings with his euro-area counterparts.

Laundry List

Even though euro-area governments committed last year to a laundry list of potential measures to ease repayment terms on Greek bailout loans after 2018, the degree to which these measures will be implemented is still a subject of contention.

A key point of contention stems from the creditors different views on Greece’s long term economic outlook and the primary surplus, which excludes interest payments, the country will be able to sustain. The IMF has more conservative estimates about both these outcomes than Greece’s euro-area creditors, in turn suggesting the country needs greater debt relief.

Dijsselbloem said the parties agreed on a target for Greece’s primary surplus, which excludes interest payments, of 3.5 percent of gross domestic product until 2022. For the years after that, the country would comply with the EU’s fiscal rules, although he didn’t determine what level of surplus that would entail and didn’t specify whether the IMF shares the euro area’s growth assumptions for Greece.

Greece doesn’t have a large maturity deadline until July, when more than 7 billion euros in obligations come due, but delaying the resolution of the program review adds to months of uncertainty that have taken their toll on the Greek economy -- which has slipped back into recession -- and kept the country from returning to the bond market.

“The last details still have to be worked through now,” said Luxembourg Finance Minister Pierre Gramegna. “The IMF is asking for a number of assurances that must be taken into account. We all hope that we will get an answer in three weeks at the meeting in Luxembourg on this aspect of the sustainability of the debt.”

Greek bonds fell on the news, with yields on 2019 notes rising 18 basis points to 5.76 percent at 3 p.m in Athens, while the Athens Stock Exchange general index was little changed.

— With assistance by Helene Fouquet, Corina Ruhe, Joao Lima, Ian Wishart, Jonathan Stearns, Richard Bravo, Stephanie Bodoni, Sotiris Nikas, and Marcus Bensasson

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