Greek debt relief up to ministers after euro zone, IMF officials fail to break deadlock

Goodbye to Jeroen Dijsselbloem. - at least until his next appointment - Photo euobserver.com

Reuters — Euro zone lenders and the International Monetary Fund remain far apart on how to provide debt relief for Greece, but officials hope euro zone finance ministers will still be able to hammer out an agreement at their May 22 meeting.

Debt relief is key because the IMF has made it a condition if its participation in the latest bailout for Greece, the third since 2010. Furthermore, Germany made  the IMF’s participation a condition for new loan payouts.

Euro Working Group who prepare Eurogroup ministerial meetings met on Monday evening to discuss how to firm up last year’s highly conditional promise of debt relief for Athens to satisfy the IMF and ease the task for the ministers next week.

But the meeting made no progress, officials said.

“There are still significant gaps on the issue of debt relief. The (deputies group) was never likely to close this gap. It will have to happen at a higher level,” one official said.

A group of north European countries led by Germany wants the IMF to join for credibility reasons, believing the European Commission’s approach toward Athens can be too lenient.

The same countries, however, oppose a firm commitment of debt relief for Greece, fearing the disapproval of bailout-weary voters at home. They are also concerned that once Athens gets a debt deal, it could no longer be forced to implement more ‘reforms’ a term the lenders use a euphemism for austerity.

The IMF negotiators are aware that Germany cannot afford to let Greece default on the loan repayment due in July, but at the same time Germany does not want to be seen to be spending ‘German taxpayers’ money writing off Greek debts. A fudged political  solution in true  EU style is expected that will push the can further down the road after the German elections in September.

Greece, meanwhile, is saying it has met its obligations — agreeing more cuts in pensions, for example, and having a relatively large primary budget surplus, not including debt repayments last year.

It is so keen to get on that it has tentative plans for a return to bond markets as early as July.

The debt relief discussion is based on a promise made by the Eurogroup in May 2016 to extend the maturities and grace periods on Greek loans so that Greek gross financing needs are below 15 percent of GDP after 2018 for the medium term, and below 20 percent of GDP later.

The IMF believes that debt relief, or at least a clear promise of it now, is needed to restore investor confidence in Greece, especially if the country, which has public debt of 197 percent of GDP, is to return to market financing next year.

Greek debt to GDP has actually risen during the various bailout periods, primarily as a result of sinking GDP brought on at least in part by the austerity demanded by lenders.