In 2012 Eurogroup agreed on a now forgotten deal for cutting Greek debt

The dispute between the IMF and Berlin goes back a few years. But when it comes to defending the German finance minister on the issue of Greek debt relief, it would appear that  a lot of what was agreed  the German finance minister and Athens has been abandoned or forgotten. That commitment for debt relief was made to different government that the Germans wanted to support  without really expecting Athens  to  ever meet the targets they demanded.   Now that their targets have been met, the agreement went out of the window. 

Below, an article from Reuters dated Tue Nov 27, 2012

http://www.reuters.com/article/us-eurogroup-greece-idUSBRE8AP05820121127

The IMF  clinched an  agreement on reducing Greece’s debt on Monday [Nov 26 2012] in a breakthrough to release urgently needed loans to keep the near-bankrupt economy afloat.

After 12 hours of talks at their third meeting in as many weeks, Greece’s international lenders agreed on a package of measures to reduce Greek debt by 40 billion euros, cutting it to 124 percent of gross domestic product by 2020.

In a significant new pledge, ministers committed to taking further steps to lower Greece’s debt to “significantly below 110 percent” in 2022 — the most explicit recognition so far that some write-off of loans may be necessary from 2016, the point when Greece is forecast to reach a primary budget surplus.

“When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt,” German Finance Minister Wolfgang Schaeuble said.

Eurogroup Chairman Jean-Claude Juncker said ministers would formally approve the release of a major aid installment.  Greece will receive up to 43.7 billion euros in stages as it fulfills the conditions. The December installment will comprise 23.8 billion for banks and 10.6 billion in budget assistance.

They also promised to hand back 11 billion euros in profits accruing to their national central banks from European Central Bank purchases of discounted Greek government bonds in the secondary market.

European Central Bank President Mario Draghi said on leaving the talks: “I very much welcome the decisions taken by the ministers of finance. They will certainly reduce the uncertainty and strengthen confidence in Europe and in Greece.”

The Greek Prime Minister at the time Antonis Samaras welcomed the deal.

“Everything went well,” he told reporters outside his mansion at about 3 a.m. in the morning.

“Tomorrow, a new day starts for all Greeks.”

However, the biggest opposition party, Syriza, dismissed the deal and said it fell short of what was needed to make the country’s debt sustainable.

A source familiar with IMF thinking said a loan write-off once Greece has fulfilled its adjustment program would be the simplest way to make its debt viable, but other methods such as forgoing interest payments, or lending at below market rates and extending maturities could all help.

German central bank governor Jens Weidmann has suggested that Greece could “earn” a reduction in debt it owes to euro zone governments in a few years if it diligently implements all the agreed reforms. The European Commission backs that view.

An opinion poll published on Monday [26 Nov 2012] showed the Syriza party with a four-percent lead over the Conservatives who won election in June, adding to uncertainty over the future of reforms.