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27th Jun 2022

Ireland signals support for Greek debt conference

  • Dublin: Calls for debt relief have so far been ignored (Photo: William Murphy)

Ireland has signalled support for a European debt conference demanded by the far-left Syriza party likely to win the upcoming Greek elections.

Irish finance minister Michael Noonan told a gathering of Irish ambassadors in Dublin he would not dismiss the idea of Greek, Irish, Spanish and Portuguese debt being discussed at a European debt conference, the Irish Times reports.

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This is the first time an EU politician has been publicly favourable of the idea, which has been at the core of the campaign led by Syriza and its young leader, Alexis Tsipras.

Tsipras has been calling for a European debt conference to slash at least a third of Greece's debt, which, after two international rescue loan programmes, has reached 177 percent of the country's GDP.

Tsipras, whose party leads the polls ahead of the 25 January vote, often refers to the 1953 London conference which wrote off half of West Germany's debt and extended the payment deadline for the rest, as part of a post-war reconstruction effort underpinned by the US Marshall plan.

The conference involved representatives from 20 creditor nations, including Greece, Portugal and Italy, who acknowledged that the burden of repayments should not crush the German people.

Syriza is tapping into a swell of popular discontent in Greece, which has gone through five years of harsh austerity measures that have slashed the country's economic output and left half of its young people unemployed

The party is promising to repay privately-held debt and restructure one third of the publicly-held Greek debt.

According to the International Monetary Fund (IMF), Greece owes other eurozone countries, the European Central Bank (ECB) and the IMF €270 billion out of its total debt of €317 billion.

Unless these international creditors agree to forfeit some of the loan revenues or at least extend the repayment deadline, Greece cannot do much. Refusing to pay would mean default and would precipitate Greece out of the eurozone.

But neither the IMF, nor the ECB are allowed to write off debt. Only the loans given to Greece by fellow eurozone states could be eased off, with further interest rate cuts and maturity extensions.

According to an options paper by Bruegel, a Brussels-based think-tank, Greece's debt burden could be reduced to around 160 percent of GDP if interest rates on the €53 billion in bilateral loans were brought to the level those governments currently pay when they borrow money for themselves.

Germany, Greece's biggest bilateral lender, has close-to-zero borrowing costs, which has allowed the government to not raise fresh debt in 2014 to cover budgetary expenses.

But the German government so far has rejected the idea of a debt conference for Greece.

This could be part of its tactics to still support the current centre-right government and its leader Antonis Samaras, whose party is trailing behind Syriza.

And not all German economists are dismissive of the idea.

“We should probably reduce Greece’s public debt to half, which means €120 billion should be written off," Marcel Fratzscher, head of the German Institute for Economic Research (DIY) who advises the government told Austrian TV ORF last week.

He acknowledged this would cost Germany around €40-50 billion, but said that his country could easily afford it, after private investors in 2012 agreed to forfeit €107 billion on their Greek bonds.

Germany stops accumulating fresh debt

Germany has managed to have the first budget since 1969 not to accumulate fresh debt, just as the EU commission is about to explain what "flexibility" means when applying EU rules on public deficit and debt.

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Greeks head to the polls on Sunday in what could see the far-left Syriza party re-write the rules of the country's bailout and start a new trend in European politics.

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