Monday

18th Jun 2018

Debt relief talks mar Greek bailout exit

  • Graffiti in Athens. The International Monetary Fund and the EU are still divided over how to reduce the Greek debt (Photo: Denis Bocquet)

With the end of the bailout looming on 20 August, Greece and its creditors are trying to bring together the three elements for a "successful exit" - the mantra that was repeated by ministers and EU officials at a Eurogroup meeting in Brussels on Thursday (24 May).

Over the weekend, the Greek government and the creditor institutions - the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund (IMF) - reached an agreement on a new package of reforms.

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The 88 so-called 'prior actions', which include further steps in the reform of the tax system and the privatisation process, will have to be adopted or implemented before the next Eurogroup, on 21 June, to allow the conclusion of the fourth and last review of the bailout.

Greek prime minister Alexis Tsipras has committed to fulfil all the requirements in the coming month and, according to an EU official, even before the start of the football world cup, on 14 June.

"We are on the right path for a successful conclusion" of the bailout on 21 June, said EU finance commissioner Pierre Moscovici.

The second part of the "successful exit" is how to ensure that Greece will be able to live without international money - the country has received €260bn since 2010 from the EU and the IMF.

Earlier this week, Tsipras presented his strategy for growth for the next five years.

The plan insists on the need to restore the confidence of foreign investors and the stability of the banking sector.

It also includes an increase of the minimum wage and the re-introduction of collective bargaining that was abolished last year at the creditors' request.

The plan received a lukewarm welcome by Greece's partners, who are waiting to see a final version after Tsipras' government discusses it with other political forces at home.

"It is probably too general, but there is an effort for coherence," said a source in a member state.

While Tsipras, who will face elections in September 2019 at the latest, could be willing to raise his left-wing profile with social measures or even a softening of already-agreed pensions cuts next year, Moscovici warned on Thursday that Greece will have to respect "all commitments".

Credible solution

Greece's growth path and the continuation of strict budget policies would be crucial for the third and most difficult part of the exit - a debt relief programme that is still being negotiated.

On Thursday, officials from the creditor's institutions, Germany, France, Italy and Spain met in Brussels to try to bridge differences between the Washington-based IMF and Europeans over the level of relief to grant to Greece.

"There is some convergence," noted Eurogroup president Mario Centeno.



Ministers asked the institutions to produce a final debt sustainability analysis - an assessment of Greece's capacities to repay its debt in the coming decades.



Until now, the IMF has been more pessimistic then the Europeans about the sustainability of the Greek debt - a €317bn debt that represents almost 180 percent of the country's GDP.

It has been asking more budget cuts and more debt relief than the Europeans, and especially Germany, has been ready to accept.

Debt relief is now "the main issue" ahead of the June Eurogroup, said Moscovici, insisting that any agreement would have to be "acceptable to all member states and their parliament, and credible for the markets and investors."

'Pieces are falling in place'

If no agreement on debt was to be found, the IMF would not put money in the bailout exit. The amount - €1.6bn - would be less important than the signal given that the IMF considers the Greek debt as sustainable.



For that reason, as well as because of Germany's insistence to have the IMF involved, an agreement with the fund has so far been considered as necessary for a "clean exit".



But on Thursday, as talks have entered a crucial phase, Centeno seemed to suggest that the EU would be willing to do without the IMF.


"Pieces are falling into place, but we have an ambitious timeline ahead of us. I see commitment on all sides so I'm confident that we'll make it," he said.

He noted however that while "the IMF is obviously welcome", a successful exit with Greece is "more important".

Greece and creditors prepare bailout exit

Greece's creditors agreed to unblock €6.7 billion of new aid by April and to open debt-relief talks, ahead of the end of the programme in August.

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At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

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