Bloomberg: Greece’s bailout review stalls as creditors debate debt relief

By Viktoria Dendrinou/

Euro-area finance ministers gather in Brussels on Monday to try to clinch a deal on easing Greece’s debt burden, which would resolve a stalled review of the country’s bailout and pave the way for a new set of rescue loans.

While Greece and its bailout supervisors have agreed on economic overhauls, the completion of the country’s review has been held back by disagreements between key creditors over how much debt relief is needed.

At the heart of the impasse lies the International Monetary Fund’s reluctance to participate in a bailout unless the euro area takes further steps to ensure the country’s 315 billion-euro ($353 billion) debt load becomes sustainable. Some nations like Germany, which is resisting changes to Greece’s debt profile, won’t release any new funds until the IMF joins the program. Athens needs its next aid installment of around 7 billion euros before it has to repay lenders in July.

A global agreement on Greek debt “is within reach and it’s vital,” European Union Economic and Monetary Affairs Commissioner Pierre Moscovici said in an interview on France Inter radio on Sunday.

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.

European Union officials see chances for a deal on Monday at 50-50, and point to a meeting of euro-area finance ministry deputies ahead of the ministers’ gathering, which will determine the likelihood of an accord.

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.

While the two sides agree that Greece will need to maintain a primary surplus — which excludes interest payments — of 3.5 percent of gross domestic product until around 2022, they disagree on what the surplus path should look like for the years after that.

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.

Last week, Greek lawmakers approved economic measures in the hopes of mollifying creditors, including pension cuts, tax hikes and other structural economic reforms.

Source: Bloomberg