24th Oct 2016

Greek bail-out to be renegotiated this summer

It would be "stupid" and "delusional" to expect Greek bail-out conditions and deadlines to remain unchanged, given political delays and the worsening recession, a senior EU official told journalists in Brussels on Tuesday (19 June).

"Anybody saying we need not and cannot renegotiate the memorandum of understanding is delusional because he or she would be understanding that the whole economy has remained completely on track," the contact said ahead of a meeting of eurozone finance ministers on Thursday in Luxembourg.

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  • Greek salad: When a trucking licence costs tens of thousands of euro, it becomes cheaper to fly in Dutch tomatoes (Photo: Katherine Martinelli)

"Tax receipts have changed, the rhythm of implementation of the milestones has changed. If we were not to change it, we would be signing off to an illusion that this will work. We have to see where we are in July and how we deal with it, that will be the new memorandum of understanding."

The memorandum - setting out deadlines and precise "milestones" for reforms, ranging from tax collection to labour markets and pension systems - was signed just three months ago when lenders agreed a €130 billion bail-out and a €100 billion debt reduction.

But inconclusive elections in May leading to new elections last weekend have delayed the adoption of budget cuts required - on paper - for lenders to disburse the next tranche of money.

Under the memorandum, Greece has to cut €11.5 billion from its state expenditure by 2014.

The winning parties in last Sunday's elections want this deadline extended to 2016.

According to the EU official, the International Monetary Fund (IMF) - a co-funder of the Greek bail-out - has experience of countries going "completely off track" and needing readjustments on their reform plans.

The source said that what matters is not to be fixated on one particular measure and its deadline, but to protect overall goals.

Talks with the new Greek government will be led by the European Commission, the IMF and European Central Bank (ECB) officials - the "troika."

The Eurogroup - eurozone finance ministers - will be "kept in the loop" in order not to go past what is politically acceptable to member states.

IMF chief Christine Lagarde will take part in the Eurogroup meeting on Thursday night, which is to be just the first in a series of upcoming discussions over the summer.

She is expected to insist that Greece reduces debt to 120 percent of GDP by 2020 and continues structural reforms.

"Structural reforms" might sound abstract. But the EU official said that if, for instance, it costs tens of thousands of euros to get a trucking licence in Greece, people fly in Dutch tomatoes instead of trucking Greek ones cross-country in a negative spiral for the economy.

For his part, Eurozone chairman Jean-Claude Juncker warned Greece that the extra leeway does not mean revisiting the whole programme.

His comments, on Austrian radio, came after talking on the phone to election winner and likely new leader Antonis Samaras.

Samaras is often called "pro-bail-out."

But his New Democracy party caused the financial mess in Greece in the first place.

His brinkmanship on EU bail-out talks last November saw commission chief Jose Manuel Barroso lose his temper and tell him to stop playing "political games."


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

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