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15th Aug 2022

EU suspends Greek debt relief over pensioners' bonus

  • Tsipras said that €617 million would be distributed as Christmas bonuses to 1.6 million pensioners who live on €800 or less a month (Photo: Spyros Papaspyropoulos)

Greece's creditors have suspended a debt relief deal over a Christmas bonus for pensioners, in a move that could revive the country’s financial crisis.

Eurogroup chairman Jeroen Dijsselbloem said in a statement posted on Twitter on Wednesday (14 December) that recent measures announced by the Greek government "appear to not be in line with our agreements."

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  • Dijsselbloem: Christmas bonuses "appear to not be in line with our agreements." (Photo: The European Union)

Last week, Greek prime minister Alexis Tsipras said that €617 million would be distributed as Christmas bonuses to 1.6 million pensioners who live on €800 or less a month.

On Wednesday morning, Germany asked the creditor institutions - the European Commission, the European Central Bank (ECB), the European Stability Mechanism (ESM), and the International Monetary Fund (IMF) - whether that was compatible with the bailout programme agreed last year.

In the afternoon, the institutions said the programme was not being respected and that the debt relief deal should be frozen.

"Some member states see it this way also and thus no unanimity now for implementing the short-term debt measures", Dijsselbloem's Twitter statement added.

The debt relief measures, agreed on 5 December, includes more time for Greece to repay ESM loans and brakes on interest rates.

They were due to be implemented immediately in order to “improve Greek debt sustainability".

Broader impact

The Christmas bonus dispute could complicate efforts by Athens and its creditors to complete the review of the second Greek bailout programme.

The review was in any case stumbling on labour market reform and the fiscal targets for the coming years.

With Germany behind the creditors’ decision, and with Greece demanding debt relief, those talks are likely to get harder.

The Christmas dispute could also complicate efforts to keep the IMF on board.

The Washington-based lender has said that it could not continue to be part of the bailout programme if Greece's debt was not sustainable.

The debt relief deal frozen on Wednesday was to be the first step toward that sustainability.

Wednesday’s decision comes after an IMF article one day earlier that highlighted tensions between the creditors.

Don’t blame the IMF

Maurice Obstfeld and Poul Thomsen, two IMF top officials, wrote on Tuesday that the IMF was "not demanding more austerity" to Greece and that demands from EU creditors for "very high" budget surpluses were "simply not credible."

"If Greece agrees with its European partners on ambitious fiscal targets, don’t criticise the IMF for being the ones insisting on austerity when we ask to see the measures required to make such targets credible," they said.

The fund said that it would decide on its participation in the programme once the second review is concluded and that it would assess Greece's debt sustainability according to the measures agreed in the review.

Dijsselbloem's Twitter statement on Wednesday said that the Eurogroup ministers would "await a full report of the institutions in January."

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Measures to reduce the cost of Greek debt will be implemented immediately, but eurozone finance ministers said more action will have to be taken for a new agreement on the bailout programme.

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