A review of Greece’s progress under its third rescue package – needed to unlock the next round of funding – has dragged on amid squabbles between the country’s government, its creditors and the International Monetary Fund.
After the latest meeting of the Eurogroup ended yesterday without conclusion, Sapin told AFP that the “window of opportunity” to settle differences was closing as key upcoming European elections could threaten to scupper any chances of a political solution.
A host of European governments will face the national polls this year, starting with the Netherlands in March, followed by France and Germany.
Sapin also referenced Greece’s “important” upcoming debt repayments. He said a “solution must be found” before they are due in June, but there are also concerns that if the country’s next tranche of bailout funding is delayed much longer the country could fall into arrears before then.
Months of bickering has culminated in the latest dispute between Greece and the IMF. The fund has refused to take part in the third bailout because it disagrees with the ambitious budget surplus required of Greece by the scheme. The IMF also believes the country requires more substantial debt relief.
As a condition for coming on board, the fund now wants Greece to put into law the measures it will take if the government does not meet the stipulated 3.5% budget surplus target in 2018. This target excludes debt repayments, but is high by any country’s standards.
Euclid Tsakalotos, the Greek finance minister, has rejected this request, stating it was “not correct” to ask a country to pass legislation two to three years before it was needed.
The fund’s participation is seen as critical to giving the programme credibility and bolstering public support in countries like Germany – Greece’s biggest creditor and the eurozone’s most influential economy.
Germany is adamant that Greece can reach the surplus target, which it would be required to maintain for several years after the programme ends in 2018, without further debt relief.
The stalemate looks set to drag on after yesterday’s meeting. Speaking at its conclusion yesterday, Eurogroup president and Dutch finance minister Jeroen Dijsselbloem said a quick finalisation of the review was “in everyone’s interest” and that the parties will “remain engaged in constructive discussions” to solve outstanding issues.
“We have encouraged them to accelerate that work, with a view to a quick return of the mission to Athens and reach a staff level agreement as soon as possible,” he stated.
He added that the “good news” is that the Greek economy is recovering “faster than anyone expected”, with fiscal revenues stronger than expected. The country is also set to overshoot its 2016 fiscal target.
A separate quarrel, which had threatened to derail a set of recently agreed debt relief measures that creditors did agree to implement, also seems to have been resolved.
The measures, agreed in December last year, were frozen after Greece announced surprise giveaways for pensioners and Greek islands bearing the burden of cuts and the refugee crisis, breaching bailout terms.
After originally reacting angrily, the European Stability Mechanism, the institution responsible for implementing the debt relief, said it is now ready to take the debt relief measures forward following a review of how Athens’ actions would affect the bailout programme.
It will now begin exchanging bonds, set at market interest rates, for fixed coupon notes belonging to Greek banks. The aim is to protect the country’s borrowing from any future interest rate increases.
The ESM will also extend the maturities of its loans to Greece and waive interest payments on some that were originally due this year.
Klaus Regling, president of the ESM, said this would “all go a long way” in easing Greece’s debt burden. The organisation believes this will equate to a reduction of around 20 percentage points in Greece’s debt-to-GDP ratio by 2060.
