Wednesday

27th Oct 2021

Greece and creditors prepare bailout exit

  • Greek minister Tskalotos (l) with ESM chief Regling (c) (Photo: Council of the EU)

Greece's creditors agreed on Monday (22 January) to unblock €6.7 billion of new aid by April and to open debt-relief talks, in an effort to prepare a smooth exit from the bailout programme in the summer.

"We're looking at the future with a greater degree of confidence," Greek finance minister Euclid Tsakalotos said after the meeting.

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"The important discussions in front of us are to do with discussions on debt and the nature of the [programme] exit," he noted.

Eurozone finance ministers reached a "political agreement" over the third review of the programme, after Greek authorities adopted a series of reforms in recent weeks that included help for new businesses, limits on strikes, and measures to reorganise the energy market.

They asked the Greek government to implement outstanding measures "as a matter of urgency," but agreed that €5.7 billion will be disbursed in February to help Greece repay its debt (€3.3bn) and its arrears (€1.5bn), as well as to create a 'cash buffer' (€1.9bn) for the post-programme period.



Another billion will be disbursed by April if Greek authorities have repaid arrears also using their own resources and if a system of electronic auctions for foreclosed properties has been properly put in place.

Greece's efforts to complete the review have been "recognised by all, including those who were sceptical some time ago," said EU finance commissioner Pierre Moscovici.

Finance ministers went further and agreed to already open discussions on debt relief measures that would be taken after the end of the programme in August.

A working group will start soon considering how to implement so-called 'French mechanism' - because it was proposed last June by French minister Bruno Le Maire - a scheme that would link debt repayments to Greece's debt.



"If growth is disappointing, there could be more debt relief. If growth is doing rather better than expected, the mechanism won't kick in," Tsakalotos explained.

The mechanism will be put in place as part of a strategy to ensure Greece's growth in the years that will follow the end of the programme.

"What we want to do is to ensure to markets that we have a programme that is good for the Greek people but is also good for the investment community," the Greek minister said.

"Greece wants and will successfully exit" the programme, assured Moscovici.

'Normal country'

He added that 2018 would be the year when Greece becomes "a normal country, with normal rules and normal procedures" of EU economic governance.

The insistence on Greece's capacity to develop a growth strategy is partly aimed at the International Monetary Fund (IMF), with which EU creditors institutions - the European Commission, the European Central Bank and the European Stability Mechanism - will have to agree on long-term debt relief measures.

All aim to find an agreement "by May, which in reality means by the June Eurogroup," a top official told EUobserver.
 "Nobody wants to keep that discussion for the summer."

The Greek debt, which is expected to reach 170 percent this year, compared to 179 percent in 2016, has been for a long time a point of disagreement between Europe and the IMF.



The IMF considers that the Greek debt is unsustainable and has advocated debt relief measures, while considering that the EU's long-term growth forecasts are overly optimistic.

For its part, the EU, and especially countries like Germany, Netherlands or Slovakia, has been more reluctant on debt relief, while insisting that the measures demanded on Greece would ensure long-term growth.



'That is the hope'

Both the IMF and the EU insist that Greece must reform and cut spending, with the IMF saying that more cuts would be needed if there was no debt relief.

During Monday's meeting, "the attitude, the language, the wording of the fund was very positive," Moscovici assured.

The finance ministers told the IMF that is should be less pessimistic and more flexible in debt talks.

In a reference to the developing growth strategy, they called on the European institutions and the IMF "to take into account the holistic Greek growth strategy" when assessing the Greek debt.

"Growth is now the key issue," insisted Klaus Regling, the head of the ESM, the eurozone emergency fund, adding that EU institutions and the IMF may converge.

"We will see whether that works, but that is the hope," he said.

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