On Monday 5 December, eurozone finance ministers enshrined three types of measures to applied in the short-term to lighten Greece’s sovereign debt. In an unrelated move, negotiations on the second monitoring mission on the Greek bailout will continue with a view to finalisation by the end of 2016.
Set out in a Eurogroup declaration in May (see EUROPE 11557), the following short-term debt-easing measures have been drawn up by the European Stability Mechanism (ESM), which holds more than 50% of Greece’s debt: - changing the Greek debt repayment profile to extend the average maturity of bonds from 28 to 32 and a half years; - taking measures to reduce the interest rate-related risks; - scrapping, but only for 2017, the measure inherited from the second bailout programme whereby (and this is punitive for Greece) interest rates set for some bonds increase if Athens fails to repay enough of its debt through privatisation.
ESM director general Klaus Regling said the cumulative positive impact by 2060 would be a 20% reduction in Greece’s debt as a percentage of GDP and a 5% cut in its gross financing needs. This is a long-time frame and he didn’t hide the fact that this basic scenario is subject to uncertainty. Some measures relating to setting fixed interest rates will incur additional costs for Greece at the beginning before any savings occur. Regling said that the agreed measures will not have any budget impact for Greece’s lenders. French finance minister Michel Sapin said the economic impact of the Greek short-term debt-easing measures is bigger than initially envisaged.
The Eurogroup hopes the talks to finalise the second monitoring mission for the third bailout programme (€86 million from the ESM) can reach conclusion by the end of the year. The stumbling blocks include determining measures and reforms to achieve a primary budget surplus (not including debt-servicing costs) in 2018. On the question of getting collective agreements working again, the head of the Eurogroup, Jeroen Dijsselbloem, said that the envisaged measures should respect the highest European standards and a special group of experts from the ILO will be set up.
Another contested element is the length of time the primary budget surplus requirement of 3.5% of GDP should be kept post-2018. Dijsselbloem said the precise medium-term targets would be set later on, not hiding the disagreements among ministers on this question. In a statement, the Eurogroup simply stated that this budget surplus should be kept ‘in the medium term.’
Finally, the question of IMF involvement is still an issue. Dijsselbloem admitted that the international financial organisation would not be able to decide on its participation in the third Greek bailout before the end of the year, although IMF representatives have stated their willingness to recommend that the IMF’s board should continue to support Greece. (Original version in French by Mathieu Bion)