Greece: eurozone finally considering debt relief – The Point

At the end of yet another gathering “exceptional” of finance ministers of the eurozone on Greece, which took place Monday, May 9 in Brussels, the President of the Eurogroup, Dutch Jeroen Dijsselbloem, seems relieved. And for good reason: after having passed a pension reform and an increase in income tax on Sunday, the Greek government fulfills a priori all of the conditions for a new installment of the aid plan of 86 billion loan to by the end of 2018. Barring unforeseen circumstances, so it should receive new funding allowing it to avoid a default in the summer vis-à-vis the European Central Bank and International monetary Fund (IMF). The announcement should take place May 24 at the next Eurogroup meeting. Because the decision can not be formally made before the famous Troika (Commission, ECB and IMF) will furnish its conclusions on the implementation of the required measures.

Progress “important”

Meanwhile, Europeans still hope to convince the IMF, the institution chaired by French Christine Lagarde, to participate in the third bailout. Monday’s meeting has allowed for Greece and the rest of the euro area to bring their views on the implementation of automatic spending cuts if, as feared by the IMF, the measures adopted so far proved insufficient to ensure the target of 3.5% of GDP primary budget surplus (excluding interest on debt) from 2018.

These undifferentiated cuts in spending will be triggered automatically if the fixed path is not required. But they can be replaced when the next budget by more structural measures, including tax increases, to mitigate the risk they entail an economic depression, as Christine Lagarde had expressed concern. “I welcome this important step,” said the Commissioner for Economic Affairs, Pierre Moscovici, after the meeting.

The involvement of the IMF is still uncertain

Considered essential by many states of the euro area to continue funding Greece, IMF involvement will be acquired if the Europeans agree to alleviate the Greek debt, the institution headed by Christine Lagarde unsustainable judge.

for the first time, the finance ministers of the eurozone agreed to discuss it formally. “I think at some point there will be a debt sustainability problem,” acknowledged Jeroen Dijsselbloem. However, a deal is far from certain. Finance ministers have just agreed to explore in the coming weeks, the technical options for reducing the annual burden of debt repayment on the Greek budget, “the short, medium and long term,” without grant an outright debt forgiveness.

Towards a relief of the Greek burden?

In the short term, the possibilities to ease the Greek burden is limited. Just because Greece has already secured a grace period of 10 years to repay a large part of its loans.

At the expiry of the aid program end of 2018, the euro area may have room for maneuver to extend the maturities of loans, grant additional periods of grace and to further reduce interest rates charged. But the real question is about the long term. Thus, Europeans can they reasonably require a primary surplus of 3.5% of GDP for Greece for decades – and while France, by comparison, is still in primary deficit

The answer is obviously no. The question remains: will they succeed to agree to sufficiently reduce the Greek burden to convince the IMF to the credibility of their bailout? The Germans will they accept? Experts from the Commission and Member States have two weeks to answer these questions by making proposals.