Will 'breakthrough' deal solve Greece's debt problems?

After a months-long stand-off and another marathon round of talks, Greece has finally secured from its European creditors a second tranche of more than €10bn (£6.8bn) in bailout funds.

It's a major step forward. The 11-hour meeting of Eurozone finance ministers yesterday produced the outline of a debt relief deal widely hailed as a "breakthrough". The plan includes deferral of repayments in the near term and provides for a number of longer-term measures. These include a cap on interest rates and overall annual repayments, several deadline extensions and the refinancing of expensive loans.

The deal breaks "an impasse between Germany and the International Monetary Fund", says the Financial Times, and markets are responding warmly. Greek bond yields have fallen below seven per cent for the first time in six months and stocks rose in Athens and around Europe this morning.

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But not everybody is convinced that the measures are sufficient. Mujtaba Rahman, an analyst at Eurasia Group, told the FT that while "creditors and the IMF have papered over cracks", the issue is "going to require another revisit", while Marc Ostwald at ASM investor services told the Daily Telegraph the agreement was little more than another round of "can kicking".

Greece will get only limited clemency between now and 2018, by which time general elections in Italy, France and, critically, Germany will have taken place.

After that – and subject to parliamentary votes in a number of countries, including Germany – more effective options will be considered. But for now, these have been set out in only the vaguest of terms. According to an official statement, they must remain "in line with the… legal frameworks" of the European Stability Mechanism (ESM) bailout fund.

This means the deal may not meet the demands from the IMF in a report this week for interest rates to be capped at 1.5 per cent, which would mostly likely require additional funding to be pumped into the ESM. Germany says that this runs counter to EU treaties.

The IMF's calls for relief to be "unconditional" and formalised "up-front", as well as to come automatically at the end of the current bailout term in 2018, have also not been met. Moreover, while the IMF maintains that the total cost of financing debts must be kept below 15 per cent in order to be "sustainable", the new deal is designed over time to limit Greek repayments only to 20 per cent of GDP.

Despite all this, the IMF intends to remain part of the bailout – at least for now – in what is seen as a significant concession, although approval will be needed at the board's next meeting. Either way, this will certainly not be the last we hear about Greece's debt.

Greece must get 'unconditional' debt relief, says IMF

24 May

A "provocative" report from the International Monetary Fund (IMF) has thrown down the gauntlet to the eurozone on the eve of a key summit to break a prolonged deadlock on Greek debt.

In its debt sustainability analysis, the IMF calls for the heavily indebted country's repayments to be deferred for more than two decades, to 2040, and for a package of debt relief to be agreed upfront and "unconditionally" and to begin at the end of the current bailout programme in 2018.

This would pose a challenge for Germany, which reports had suggested was hoping to defer an agreement on more substantive relief, which must be approved by the Reichstag, until after its 2017 elections.

However, more contentious still is the IMF's demand that this package of measures include an interest cap of 1.5 per cent for all European debt until 2060.

It acknowledges debt markets could not "absorb the €200bn of loans that would need to be refinanced at that rate", notes the Financial Times, meaning Germany and its fellow Eurozone members would need to plug gaps.

In short, this means "member states making a commitment to compensate the European Stability Mechanism [ESM]", adds The Guardian [2], which the IMF admits would run up against "political and legal" constraints.

Germany would struggle to get such a measure through its parliament - and in any case, the FT says, the country reckons such payments to the ESM rescue fund run counter to existing EU treaties.

"It is very provocative," Andrea Montanino, a former Italian representative to the IMF now at the Washington-based Atlantic Council, told the paper. "You have the IMF telling the Europeans what to do on their own debt. [Yet] in the whole document there is no word on what to do with the IMF debt."

For its part, the IMF is under pressure to abide by its own rules and not "grant Athens or its European creditors any special treatment".

Without such extensive measures, the report argues, interest on Greece's debt pile will amount to 60 per cent of its entire budget by 2060. It also reckons current bailout plans to run a surplus of 3.5 per cent by 2018 and then for the ensuring decade are unrealistic and should be lowered.

There had been optimism surrounding today's meeting that a deal might finally be done that will once and for all remove the spectre of Grexit from the Eurozone. But with most members saying IMF involvement and oversight is critical, the latest intervention throws a spanner in the works.

Greece demands 'concrete' debt relief after approving more austerity

23 May

"European leaders get the message that Greece is sticking to its promises… Now, it's their turn," Alexis Tspiras was quoted as saying yesterday.

The Greek Prime Minister's remarks came ahead of a vote on the last batch of controversial austerity measures agreed as part of last summer's third bailout deal, reports the BBC.

The latest austerity package, which went through parliament by a narrow margin, includes "new taxes on fuel, tobacco, alcohol, internet, pay television, hotel stays, cars, changes in property tax, as well as a rise in the basic value-added tax rate, applied to most goods and services, to 24 per cent from 23 per cent", says the Wall Street Journal.

A privatisation fund to manage and invest proceeds from sales of state assets has also been created, while another new law will introduce a "brake" that will trigger more spending cuts if budget targets are missed.

The new measures should clear the path for European creditors to release some €11bn (£8.5bn) in bailout funds at tomorrow's meeting of eurozone finance ministers, says the Daily Telegraph. Greece needs the money to meet its next round of debt repayments in July and avoid bankruptcy.

But Athens also hopes its compliance will bring an even greater reward in the form of "concrete" measures from creditors to ease the burden of the country's massive debt pile, which stands at a staggering 190 per cent of the annual output of the economy.

"The measures must be serious, not just vague ones that say, 'We will do something' like they said in 2012," Labour minister George Katrougalos said. "We want to see at least a concrete roadmap on how we are going to see this debt reduction."

Katrougalos added that his government was "pragmatic" and understood "political constraints in other countries", therefore giving tacit approval to a deal that will not include any cut in the face value of debts, as demanded by Germany, but will include "short-term, mid-term and long-term measures".

In practice, such concessions will ease the pressure on Greece by deferring debt payments to 2018, a year after the next German general election. From then on, there would be more substantial action on repayment deadlines, as well as a cap on interest rates and potentially even a windfall from excess bailout funds in order to refinance any expensive loans.

Will Greece ever be able to pay off its debts?

10 May

Finance ministers from across the eurozone are proclaiming yesterday's inconclusive talks on the Greek bailout and debt crisis to be a major success.

Even Euclid Tsakalotos, Greece's finance minister and chief negotiator, told the Financial Times all parties are now "working on a situation where Greece can at last turn the corner".

The cause for optimism was approval of reform measures Greece has already enacted, following the latest austerity legislation being passed earlier this week after two days of tense parliamentary debate and amid rioting in Athens. Another set of punishing economic reforms will be passed before the next Eurogroup meeting on 24 May.

There has also been progress on a second, more contentious issue of "contingency" measures in the event that Greece fails to meet ambitious targets for a 3.5 per cent budget surplus by 2018.

Instead of forcing the country to attempt to pass yet more cuts in advance – chair Jeroen Dijsselbloem acknowledged this would "not work politically or legally for the Greeks" – the group will propose some potential contingency savings that it would have time to review and revise before implementing.

Such a plan is still viewed sceptically by the International Monetary Fund, however, and is a work in progress.

So, too, is a framework for debt relief which the IMF has said is essential to its continued involvement but which is politically toxic in Germany.

Here again, the big progress was in having meaningful talks, with Germany's Wolfgang Schauble seemingly amenable to a plan that would offer limited concessions up front and guarantee no cuts in the face value of debts in the long term.

Wolfango Piccoli, an analyst at Teneo Intelligence, said the plans could involve "debt management" until 2018 in the form of payment deferrals, reports The Guardian. The next stage, which would come after the general election in Germany, could see repayment deadlines extended and a cap on interest rates and the overall value of annual repayments.

There is even the controversial suggestion that any excess money left over from the €86bn (£67.8bn) bailout plan could be used to cheaply buy out some IMF loans.

Would all of this work? According to a document prepared for the talks by key bailout creditor the European Stability Fund, it is by no means certain.

Analysis of the report by the Wall Street Journal says that even with such debt relief, by 2050, Greece will be spending more than 15 per cent of its GDP each year to finance its borrowing, above the level the IMF deems "sustainable".

It is unlikely this detail will derail some kind of agreement later this month that kicks the can down the road until 2018. What it suggests, though, is that Greece's debt crisis is not going to be fully resolved any time soon.

Greece debt relief deal will not come yet

09 May

The eurozone could be set for another summer of existential crisis over the fate of Greece, as finance ministers played down the chances of a debt relief deal.

Politicians from across the 19-country single currency zone met in Brussels today to discuss the Greek debt crisis. It's an issue that has taken a back seat for European Union leaders caught up with the migrant crisis and the UK's EU referendum and despite a shaky third bailout agreed last July, it remains far from fully resolved.

Pierre Moscovici, the European Commission's economics chief, told the Financial Times "talks would take place in a three-stage process: creditors would first assess progress on Greek reforms, [then] discuss 'contingency' measures, and… finally, come to the debt burden".

The assessment of the reform agenda is a first review of adherence to the terms of the bailout that has been hanging around since last autumn. It should be a relatively positive discussion after Greek Prime Minister Alexis Tsipras last night narrowly secured parliamentary approval for €5.4bn (£4.2bn) of fresh austerity measures, including cuts to top-up pensions for the poor and higher taxes on middle earners.

EC President Jean-Claude Juncker told The Guardian that Greece has "basically achieved" the objectives of the reforms, which should clear a path for the latest tranche of bailout funds.

However, from there, things get more difficult. For example, the "contingency" measures mentioned above are, in fact, a demand for extra, unplanned austerity provisions worth €3.6bn in recognition of the optimistic nature of the current cuts targets and the likelihood they will be missed.

Greece is so far refusing to comply. Finance minister Euclid Tsakalotos wrote to his eurozone counterparts at the weekend to say there is "no way such a package can be passed by… any democratic government that I can imagine", The Times reports. Instead, he wants an emergency brake in place if targets are not achieved.

Debt relief is another sticking point, for both Greece itself and the International Monetary Fund, which says it will not remain a part of the bailout unless the debt pile is made more sustainable. Germany says it will not be part of a deal that does not involve the IMF, so this could bring the whole house of cards down.

While Moscovici says there will be no outright cut to the debt pile, which is equivalent to 180 per cent of the country's GDP, he has hinted that repayment dates and interest rates could be adjusted to make servicing the debt more manageable. The two sides remain far apart at the moment, however.

The Guardian notes that most ministers arriving at the meeting today have stated there will not be a deal yet and that the next scheduled summit on 24 May is a more likely date for a final agreement.

"We're definitely going to discuss it. We'll discuss when, if, under what conditions this could take place," said Eurogroup president Jeroen Dijsselbloem. "But this is the first discussion. I don't expect any definite conclusions on it yet."

Greece debt crisis rears its head again after IMF leak

04 April

Yet more talks on the latest stage of Greece's protracted third bailout have hit the rocks, after leaked transcripts of discussions among International Monetary Fund officials appeared to show it was prepared to push the country close to default to get a deal agreed.

WikiLeaks published details of an alleged conference call involving three IMF officials: Poul Thomsen, the head of the Europe department, Delia Velculescu, leader of the team in Greece, and Iva Petrova, reports Reuters.

It is claimed they were "discussing tactics to apply pressure on Greece, Germany and the wider European Union to reach a deal in April", including threatening to pull IMF support for the bailout and raising the prospect of Greece defaulting on its debts.

Greek Prime Minister Alexis Tsipras told weekly newspaper Ethnos: "It seems that some people are playing games with an aim to destabilize us".

In truth, though the measures would be targeted just as much at Germany.

"Germany has in the past said the IMF is an important player in the Greek rescue," notes Reuters, but crucially "it does not support the debt relief demanded by the IMF".

Creditors have delayed two sets of talks on the next tranche of Greek bailout payments amid disagreements over the scale of the country's fiscal gap by 2018, reports the BBC.

Reports suggest the European Union is sticking to overly ambitious surplus targets, but if this is admitted, Greece may have to undertake the controversial pension reforms it has so far resisted to meet tougher targets.

Further cutbacks are thought likely to be resisted without some agreement from creditors to ease the burden of the country's debt, which the IMF reckons is unsustainable and a barrier to growth.

International Monetary Fund chief Christine Lagarde (pictured above) denied the leak showed was trying to increase strain on Greece to get a deal and said the "incident" had made her "concerned as to whether we can indeed achieve progress". However, she has decided to allow the IMF team to return to Athens to continue debt discussions.