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24th Aug 2019

Fiscal hawks warn against Greek debt write-off

  • Lagarde and Schaeuble: Debt forgiveness doesn't have many supporters in northern Europe (Photo: Council of European Union)

Germany, Finland and the International Monetary Fund have warned against the idea of an international conference to write off some of Greece's debt.

Greece’s left-wing party Syriza and its leader Alexis Tsipras, who might become prime minister after the Sunday (25 January) elections, have called for a debt conference to write off some of Greece's debt, similar to the 1953 London Conference that wrote off half of Germany’s post-war debt.

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Greece’s public debt has reached €320 billion, or 174 percent of its gross domestic product, but Athens currently has relatively small debt repayments, as the deadline for paying back the loans has already been pushed back beyond 2050.

The idea has been met positively in Ireland and France. The Irish finance minister last week came the first eurozone politician to speak in favour of a conference that would also look at Ireland, Portugal and Spain's debt.

Speaking to the Financial Times on Sunday, French finance minister Michel Sapin said eurozone countries should respect the outcome of the Greek elections and be ready to negotiate with the new Greek leadership on restructuring the country's large debt burden.

“Whatever the result of the election will be, it is absolutely fair and legitimate that discussions should take place between the EU and the new Greek government,” Sapin said.

But the idea has gained no traction among fiscal hawks, who so far have called the shots on Greece's two consecutive bailouts and the austerity measures attached.

Speaking to the Irish Times on Sunday (18 January), IMF chief Christine Lagarde said that "as a principle, collective endeavours are welcome but at the same time a debt is a debt and it is a contract.”

“Defaulting, restructuring, changing the terms has consequences on the signature [of a country] and the confidence in the signature," she added.

Her comments were echoed by Finnish prime minister Alexander Stubb in an interview published Monday in the Greek newspaper Ekathimerini.

"No, a debt writedown is not something that would be in the interest of the eurozone and it would not be acceptable to Finland. It would not be in line with basic EU rules," Stubb said.

Finland in 2012 was the only EU country to demand extra financial guarantees in order to approve the second Greek bailout, to mitigate the risk that Athens would not pay back the loans in full.

EU commission vice-president in charge of the euro, Valdis Dombrovskis, also told Reuters that "we are not considering debt write-offs".

Equally critical of the debt write-off idea is German finance minister Wolfgang Schaeuble who over the weekend told Der Spiegel magazine that this "question does not arise" and that the next Greek government must honour its commitments.

"Politicians in Greece must take care that they don't promise more before the election than they can keep afterwards," Schaeuble warned.

In poll published Sunday gave Syriza a 3.1 percent lead over the ruling centre-right New Democracy party, up from 2.5 percent the previous week.

New Democracy leader and prime minister Antonis Samaras meanwhile has received support from his Spanish counterpart, Mariano Rajoy, who came to Athens over the weekend to speak in favour of the policies. implemented by Samaras.

“I am here to support a set of policies that have been hard, difficult, and complicated,” Rajoy said at a joint press conference with Samaras in Athens today. “Those policies were necessary, indispensable, and have borne fruit. More importantly, they lay a solid foundation for the future.”

Samaras, for his part, also warned that "it is not possible for negotiations on all the issues to start again right from the beginning, and all Europe’s rules to change, each time a new government is elected”.

He said his government is negotiating a soft transition out of the last three-year bailout, which would ease some of the austerity measures.

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