Eurozone finance ministers agree short-term debt relief for Greece

6 Dec 16

Eurozone finance ministers have agreed on short-term debt relief measures for Greece, but remain divided on the country’s fiscal targets and the reforms needed to reach them.


The deal was struck at a meeting in Brussels yesterday, which also addressed the next round of reforms Greece needs to make to unlock further tranches from its third, €86bn bailout programme.

Ministers also confirmed a set of measures to be implemented before 2018 to reduce Greece’s debt mountain, worth 180% of the country’s GDP. However, other members of the Greek ‘troika’, namely the International Monetary Fund, believe more substantial relief is needed.

But the parties could not reach a consensus on how to implement prescribed reforms to the labour market and other measures to boost growth and competitiveness, or how long fiscal targets should last.

Under the bailout terms, Greece has to achieve a budget surplus of 3.5% of GDP by 2018 – a figure the IMF also argues is too high with the current debt burden. Ministers said this should be maintained for the “medium term”, but views on exactly what this means ranged from three to 10 years.

Jeroen Dijsselbloem, head of the Eurogroup and Dutch finance minister, said that they would defer discussions on this matter until the current bailout programme ends in 2018. The possibility of any further debt relief for Greece will also not be tabled until that date.

So far, the IMF has declined to take part in Greece’s third bailout because it believes its planned trajectory is unachievable.

With a lack of agreement on reforms clouding clarity on the debt situation, any decision from the IMF is now likely to be postponed further, to the dismay of nations like Germany that want the fund on board.

Germany is also one of the main sources of resistance for further debt relief discussions. The country is one of Greece’s biggest creditors and is reluctant to offer more leeway before national elections in 2017.

Pierre Moscovici, European commissioner for economic and financial affairs, said the measures that were agreed on Greek debt will have a “major impact in the years and decades to come”. They include longer repayment periods and the waiver of some interest rate mark-ups.

As the programme enters its second phase, Greece is also required to implement a fresh round of reforms, following on from a raft of harsh austerity measures enacted since the third bailout was agreed in 2015 and as part of previous rescue packages.

The key sticking point here is labour market changes that will make it easier to fire workers, which Athens is tentative to introduce as the popularity of its prime minister, Alexis Tsipras, wanes.

Tsipras might see some respite in 2017, however, as Greece moves towards an expected return to growth. Moscovici hopes an agreement on the reforms will be reached before the start of the new year.

Greece is also eager to reach agreement in order to gain access to a bond-buying programme run by the European Central Bank before its current end date in March 2017.

Also yesterday, the Eurogroup discussed its members’ draft national budget plans. A number of countries’ proposals were found to be at risk of falling foul of European Union budget rules.

These include nations like Belgium and Finland, as well as some countries already subject to a mechanism to reduce deficits that are considered unsafe by EU standards, such as Spain.

Two nations, Spain and Lithuania, were asked to alter their plans. 

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