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May 23, 2017


No white smoke on Greek debt relief yet

There was no deal on Greek debt at the eurogroup meeting last night. Seven hours of talks that were not enough to break the deadlock. The IMF, Germany, France and Greece could not find a formula for debt relief and primary surplus targets that everyone could agree upon. Expectations and possibilities are still apart, said Jeroen Dijsselbloem afterwards. A final decision is set for the next eurogroup meeting in Luxembourg June 15. This certainly comes as a disappointment for Greece.

On procedure, one of the fudged compromises on the table was that the IMF signs up for the programme but only contributes financially once debt relief is granted by the eurogroup, according to the FT. This proposal was dismissed by Euclid Tsakalotos, who insisted on a more concrete proposal.

The other sticking point is the macroeconomic scenario for Greece, in particular the primary surplus path. Dijsselbloem said that the 3.5% primary surplus target has to stay for five years, that is until 2022. Thereafter two options were discussed yesterday. Kathimerini writes that the first draft of eurogroup statement noted a 2% target as for the 2023-2060 period. The second draft noted a 2.2% primary surplus from 2023- 2060. There there two underlying scenarios on the table, and the negotiations were about a third scenario, that lies between those two:

  • Under the first scenario, Greek’s long term growth is on average 1.3% and the country will have primary surplus of 2-2.6% of GDP. Under this scenario the measures agreed in May 2016 is enough to turn the Greek debt sustainable, as it results in a reduction of public debt below 60% of GDP 2060.
  • The second more pessimistic scenario, supported by the IMF, assumes a long term growth rate of 1%. This means after 2022 only a primary surplus of 1.5% of GDP is realistic, resulting in Greek public debt to reach 226% of GDP in 2060. In this scenario, further debt measures are an absolute necessity. 

Wolfgang Schäuble already warned beforehand that he will not overstep his mandate, insisting that the conclusions for the eurogroup in May 2016 are still valid. Then the finance ministers agreed that the case for debt relief will be examined after a successful completion of the programme, that is in 2018, and only granted when necessary. The IMF on the other hand insists on more concrete terms for debt relief as a condition for its participation in the third programme, which so far has been stemmed by the ESM alone. The IMF participation, meanwhile, was the condition the Bundestag imposed in 2015 when endorsing German participation in the third bailout programme.

Will the new French government change anything? Emmanuel Macron called Alexis Tsipras yesterday, ensuring him that the French administration will push for Greek debt relief to find an accord soon. Finance minister Bruno Le Maire participated in the breakout group with the IMF, Germany and Greece, whose discussions lasted for reportedly three hours. After the meeting, Le Maire admitted that there are differences between France and Germany over Greek debt sustainability, although he said that Berlin had played a “constructive” role, according to Macropolis.

The eurogroup meeting started yesterday involving all eurozone finance ministers, who gave a mostly positive assessment of Greece’s adoption of a series of prior actions.

Our other stories

We also have stories on the rise of Jeremy Corbyn in the opinion polls; on the Commission’s policy recommendations for the eurozone; on Schäuble and Le Maire agreeing on a process for eurozone reform discussions; on the high costs of central clearing; on the Fine Gael leadership contest; and on Italy’s obsession with voting systems.

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