4th Oct 2022

Ministers to discuss Greek debt, but no deal in sight

  • IMF chief Christine Lagarde (l) and Eurogroupe president Dijsselbloem. "We believe that specific measures, debt restructuring, and financing must now be discussed contemporaneously," Lagarde said. (Photo: consilium.europa.eu)

A meeting of eurozone finance ministers on Monday (9 May) had been presented as a deadline for an agreement between Greece and its creditors in order to unblock a new tranche of more than €5 billion in aid.

But barring a last-minute breakthrough, the ministers will only discuss the state of the discussions and try to set political conditions for progress in the coming days or weeks.

 For the first time, they will talk about the sustainability of Greek debt and possible debt relief.

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  • 'We will set Greece on its feet at all costs," Greek PM Tsipras said.

The International Monetary Fund (IMF) had threatened to quit the bailout programme if the Europeans refused to include the debt issue within the scope of current talks, which are focused on reforms and economic measures.

“We believe that specific measures [to reduce the deficit], debt restructuring, and financing must now be discussed contemporaneously,” IMF chief Christine Lagarde said in a letter to eurozone leaders last week, leaked to the Financial Times.

Greece's creditors are the European Commission, the European Central Bank, the European Stability Mechanism and the IMF.

Until now, the Eurogroup planned to open talks on debt relief after the conclusion of the first review of the bailout.

Greek prime minister Alexis Tsipras told MPs on Sunday that Monday would be a “a very important day”.

Under IMF pressure, the conclusion of the review and debt relief could be part of a single deal. But Monday's meeting will only be a step in that direction.

"Progress can be made, but for a total deal including the debt issue, more is probably needed," an EU source told EUobserver.

The rest of the deal has two parts.

The first is a set of reforms, mainly on pensions and tax, that is part of the bailout's memorandum of understanding agreed last year.

After several months of talks, measures to save €5.4 billion have been agreed.

On Sunday evening, the Greek parliament adopted two bills to reduce the largest pensions, increase contributions and raise several new taxes.

The vote followed a last concession on Friday by Tsipras, who lowered to €8,363 a year the threshold above which Greeks start to pay income tax.

"For the first time the agreement, even though it is difficult, can be implemented," Tsipras told MPs before the vote.

“We will put Greece on its feet at all costs.”

'Massive effort'

The vote took place after three days of strikes and demonstrations in Greece to protest the bills. Several people were injured in riots near the parliament in Athens on Sunday.

Tsipras admitted in parliament that the measures were a "massive effort" that was part of a "harsh fiscal adjustment", but he assured that 90 percent of pensions would not be cut.

Despite misgivings, all MPs in Tsipras' party and its allies voted in favour of the bills.

The second part of the deal under discussion between Greece and its creditors is a package of contingency measures that would be implemented if Greece failed to meet its fiscal target in 2018.

According to the bailout memorandum, Greece must reach a primary budgetary surplus - a surplus before interest is paid - of 3.5 percent of GDP. For 2016, the target is a 0.5-percent primary surplus.

Talks have stumbled so far because the Greek government said the package was not part of the memorandum and that it would be unconstitutional to legislate in advance.

On Sunday evening, the Greek government sent an alternative proposal to the creditors. Under its proposal, the government would adopt a so-called safety mechanism that would detail which measures would be taken in case fiscal targets are not met.

IMF's vision

The contingency package was a demand by the IMF, which doesn't share the Europeans' estimation that Greece will be able to reach a 3.5-percent primary surplus in 2018 and wants guarantees that Greece would try to correct the situation.

“For us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them,” the IMF's Lagarde said in her letter.

While the IMF has been asking for more cuts and reforms than the Europeans to ensure a long-term reduction of the Greek deficit, it has also been advocating debt relief against the will of several European countries, especially Germany.

With the contingency package and the alternative safety mechanism, as well as debt sustainability on its agenda, Monday's Eurogroup will try to pave the way for a deal that will be much more the IMF's vision than a European one.

Greece's creditors set out debt relief roadmap

Eurozone finance ministers agree for the first time to consider measures to ease the burden of the Greek debt. An agreement for a next payment of bailout support is expected on 24 May.

Greece and EU make progress on bailout deal

Athens and EU institutions agreed on an economy package to unblock aid that could go beyond €10 billion. Agreement on future contingency measures and IMF support still lacking.


EU officials were warned of risk over issuing financial warning

The European watchdog for systemic economic risk last week warned of "severe" threats to financial stability — but internal notes show top-level officials expressed "strong concerns" over the "timing" of such a warning, fearing publication could further destabilise financial markets.

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