Reuters — Euro-zone governments, Greece’s biggest creditors, agree that debt relief for Athens should be accomplished by capping its debt servicing costs at 15 percent of gross domestic annually, the chairman of the euro zone finance ministers, Jeroen Dijsselbloem, said on Thursday.
But discussions on whether the relief should be granted up front, over time as some conditions are met, or as a mix of the two, would only start later this year, after Greece successfully passes the first assessment by the creditors of its bailout reforms, he said.
“There is a broad understanding about the method we should choose, that is to look at the annual financing needs for the sovereign debt,” Dijsselbloem told Reuters in an interview.
“Second, there seems to be a broad understanding that a good standard would be to have the cap at a maximum of 15 percent of GDP,” he said.
“And third, and we are working on that with the European Commission and the International Monetary Fund, would be to have a common understanding of scenarios: What are the realistic expectations in a normal scenario? Or in an adverse scenario in terms of growth and inflation, etc?” he said.
Athens, and initially also the IMF, has been pushing for a haircut on Greece’s nominal sovereign debt, which is to top 180 percent of GDP this year, according to commission forecasts.
But euro-zone governments argue that what matters more than the nominal value of the debt is how much it burdens the economy through annual debt servicing costs.
After two bailouts since 2010, two thirds of Greek debt is now held by euro-zone governments that extended loans to Athens with an average maturity of 31-32 years and an interest rate of around 1 percent – a more favourable rate than that paid by Italy.
Moreover, Greece does not have to start repaying these loans until 2022, all of which makes the annual debt burden for Greece quite manageable, euro zone officials argue.
Dijsselbloem indicated that a complete upfront debt relief deal might not be the best solution.
“We will see if there are any financing peaks in the coming 30 years,” he said.
“The European Stability Mechanism’s analysis has shown that the first financing humps will maybe occur in 15 years. So, if that is the case, it would be strange to already try to tweak those – they are very far away,” he said.
“But we will see – it very much depends on the scenarios we work on with the IMF,” Dijsselbloem added.
Officials have said that the IMF believed that while capping annual debt servicing costs at 15 percent of GDP was a standard that worked for most economies, Greece might need more generous terms, with annual costs limited to 10 percent of GDP.
“My understanding was that the IMF always works on the 15 percent standard, but if they say that this is too high for Greece, then this is one of the issues we will have to discuss with them,” Dijsselbloem said.
Some EU officials privately point out the IMF was pushing for debt relief for Greece while expecting to be paid back in full itself. Dijsselbloem refused to comment on whether the IMF should agree to restructure its loans to Greece, too.
IMF loans to Greece are four times more expensive than money borrowed from the euro zone, and the latest, third bailout for Greece would reduce Athens’ reliance on them, he said.
“With the 86 billion euros, what we are doing is we are repaying the IMF, because the IMF is very expensive,” Dijsselbloem said. “We are repaying it with ESM loans, which are much, much cheaper.”
“Part of the current programme is phasing out the IMF and phasing in more European loans,” he said.
He noted it was politically very important that the IMF remain involved in the third bailout, even if it were not to lend any money.
“It is crucial that they are involved for the credibility of our programme and political support in Germany, the Netherlands, etc,” he said.
