Thursday

11th Aug 2022

EU hints at more time, but no Greek write-offs

  • Dijsselbloem (r) offered no special treatment for Syriza (Photo: consilium.europa.au)

EU finance chiefs hinted on Monday (26 January) that Greece could be given more time to repay its debts but refused to budge on the new Greek government’s demands to write-off a large part of its debts.

Jeroen Dijsselbloem, who chaired a meeting of euro finance ministers on Monday, said that he welcomed the left-wing Syriza government’s “ambition” to remain in the eurozone and had had a 15-minute phone call with the likely finance minister, Yanis Varoufakis.

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But he warned new Greek prime minister Alexis Tsipras not to expect special treatment.

"We all have to realise and the Greek people have to realise that the major problems in the Greek economy have not disappeared and haven't even changed overnight because of the simple fact that an election took place," Dijsselbloem said.

Greece’s €240 billion EU bailout concludes at the end of February but the country faces debt repayments totalling around €10 billion this summer and, with its cash reserves at a mere €2 billion, could quickly face a cash-flow crisis.

Yanis Varoufakis, who is set to be appointed finance minister on Tuesday (27 January), said Syriza had inherited a “poisoned chalice”.

The Greek economy returned to growth in 2014 after six consecutive years of recession which wiped out more than a quarter of its economic output.

However, its debt burden remains at a cropping 190 percent of GDP.

Syriza won 149 seats in the 300-seat parliament in Sunday’s election, two short to have an outright majority, and has quickly formed a coalition government with the right-wing Independent Greeks who took 13 seats.

At the centre of its economic platform is a demand for a European Debt Conference to be organised to discuss how to write-down large portions of the government debt of Greece and other heavily indebted eurozone countries.

A paper by the party’s chief economist has contemplated an across-the-board write-down of all eurozone debt over 50 percent of GDP - around €4.35 trillion.

Syriza also wants a five-year grace period before the repayment of its debt burden begins, with a “growth clause” to be established so that the repayment of the remaining debt is financed by growth rather than solely by budget cuts.

Such a plan is anathema to EU leaders in northern Europe.

"We will not forgive loans but we are ready to discuss extending the bailout programme or maturities,” said Finnish prime minister Alex Stubb on Monday. “But this will not change the fact that Greece must continue economic reforms," he added,

"Making debt more affordable is a better solution than writing it off,” said Irish finance minister Michael Noonan.

“The solution for Greece's debt problem is a new arrangement on the length of their loans and the interest rates to be paid and there is still some leeway even though these have been adjusted before.”

However, Klaus Regling, who runs the EU’s bailout fund, indicating that there was little wiggle room to sweeten the terms of the existing repayment plan, telling reporters that the maturities on Greek debts had already been extended to 32 years and interest rates lowered in 2012 at a value of €8.7 billion per year to the Greek budget.

“The solidarity mechanisms are huge,” he said.

Regling’s European Financial Stability Facility (EFSF) has paid out €141.7 billion to Greece since 2010 and now holds over 40 percent of the country’s public debt, making it Greece's largest single creditor.

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The new Greek cabinet contains very wide-ranging ideologies and traditions, which will affect how the government is able to negotiate with Brussels and Berlin.

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