Euro zone looks to help Greece on debt from 2018

The role of the IMF in the Greek bailout is politically crucial for Germany & other Euro zone countries.

Picture: AFP.

ATHENS - Euro zone finance ministers offered on Monday to grant Greece debt relief by giving it longer grace periods and bond maturities from 2018 if the country delivers by then on all reforms agreed under its latest bailout.

The offer, to be worked out in detail by deputy finance ministers by 24 May, appears to be a compromise between Germany, which does not believe Greece needs additional debt relief, and the International Monetary Fund, which insists it is necessary.

"This agreement on debt... by the European partners is expected to allow the IMF to participate in the programme," the ministers said in a statement.

The involvement of the IMF in the Greek bailout is politically crucial for Germany and several other euro zone countries.

The ministers also expect a deal within days on Greek contingency reforms, which would only kick in if Athens veered off its promised fiscal path, paving the way for the disbursement of new loans to Greece.

The ministers said the guiding principles for debt relief for Greece would be to facilitate market access, smooth out its repayment profile, provide incentives for reforms even after the bailout ends and allow for uncertain GDP growth and interest rate developments in the future.

Greek Finance Minister Euclid Tsakalotos said after the meeting in Brussels that the deal would pave the way to disburse more bailout cash to Athens, helping it cover debt repayments maturing in June and July.

The debt relief analysis would be done separately for the short, medium and long term, the ministers said in their statement.

For the short term the focus would be on optimising debt management.

For the medium term the euro zone would consider longer grace periods and maturities as well as returning to Greece profits made by the European Central Bank on bonds bought under its Securities Markets Programme (SMP) and for investment.

For the long term, euro zone ministers said they would consider in 2018, if Greece meets its primary surplus target of 3.5 percent of GDP, whether more debt relief is needed to keep the country's debt-servicing costs sustainable.

The chairman of the meeting, Jeroen Dijsselbloem, said the IMF supported such an approach to debt relief for Greece.

The offer to prepare concrete debt relief options by 24 May follows the passing of a package of unpopular pension and tax reforms in Athens earlier on Monday that one critic called "a tombstone for growth".

The package was also one of the conditions to unlock at least 5.4 billion euros in new loans from its latest bailout.

The other condition was the set of contingency steps, which would produce 2 percent of GDP in savings if needed, to meet the 2018 primary budget surplus target. A primary balance refers the money a government has before it starts servicing debt.

The contingency steps were tricky because Greek law does not foresee the possibility of legislating contingency reforms that would be triggered if fiscal goals are not met. But the euro zone and Greece appear to have found a way out.

"If measures are enacted with a temporary nature when the mechanism is triggered, permanent structural measures agreed with the institutions, including revenue measures, should become effective in the year thereafter, as part of the regular budgetary process, in order to bring the budget structurally back on track," the statement said.