Greece's creditors set out debt relief roadmap

This was the first time ministers and Greece's creditors - the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund (IMF) - openly talked about debt relief.

The proposal put on the table by Eurogroup president Jeroen Dijsselbloem was endorsed by all ministers including Germany's Wolfgang Schaeuble, who had been opposed to offering relief before Greece completes the bailout programme agreed last year.

The Eurogroup, Greece and its creditors now hope to clinch a deal at the next planned meeting on 24 May.

"The discussion was positive and constructive. We made very important progress," EU finance commissioner Pierre Moscovici said at a press conference.

Greek finance minister Euclid Tsakalotos told journalists it was a “very good Eurogroup for Greece, and I think a very good Eurogroup for Europe”.

While not a definitive breakthrough, the roadmap could give a boost to technical talks that were dragging on.

The main proposal is a three-stage process to help Greece manage its debt in the short, medium and long term.

Measures such as longer grace and payment periods or capping interest rates and annual payments could be taken to reduce the cost for Greece of repaying its debt.

But Greece will have to implement the reforms required in the three-year bailout programme.

Debt relief is a Greek demand but also an IMF requirement to stay in the bailout, because it believes that without relief the Greek debt would not be sustainable and the bailout would be useless.

'Great relief'

According to an assessment presented to ministers by the ESM, the eurozone's emergency fund, Greek debt could fall to 62.8 percent of GDP by 2060 under an optimistic scenario, but it could also go up to 258.3 percent of GDP under a pessimistic scenario.

The latest figures by the European Commission suggest Greek debt is standing at 182.8 percent in 2016. The average debt in the eurozone is expected to be 92.2 percent this year.

EU, Greek and IMF experts were tasked by the ministers to come up with concrete proposal before the 24 May Eurogroup

"It is a great relief," Tsakalotos said, adding that Greek consumers and investors needed a long term clarity to "start making decisions on the long term".

The two other parts of the deal ministers hope to reach on 24 May concern Greek reforms.

The first part consists of measures required by Greece's creditors to conclude the first review of the bailout programme.

A day after the Greek parliament adopted two bills to reform pensions and the income tax system, the Eurogroup said the move "paves the way" to the conclusion of the review.

An agreement on the review will trigger the disbursement of €5 billion or more.

The Greek government still has to take measures on public sector wages, implement a strategy agreed last year to help Greek banks recover loans that have not been repaid and establish a privatisation fund.

Jigsaw

The second part is the adoption of so-called contingency measures, a package Greece would have to implement if its finances went off track between now and 2018.

The finance ministers agreed that rather than adopting specific measures now, the Greek government would establish a mechanism to trigger emergency spending cuts followed by structural reforms.

In practice, if Eurostat figures suggested Greece was not doing well enough, the Greek president would issue a decree to decide "across-the-board cuts excluding very sensitive items such as defence or unemployment benefits", Tsakalotos explained.

Then more measures would be included in the regular annual budget proposal.

"The mechanism fulfils the criteria: it is objective, legislated up-front, credible and automatic," Moscovici said.

Tsakalotos said he hoped the "three pieces of the jigsaw" would come together on 24 May to allow the disbursement of a new tranche of aid.

But much discussion will be needed in the coming two weeks, especially to work out a debt relief roadmap that satisfies both the IMF and sceptical countries like Germany.