Eurozone member states and the International Monetary Fund (IMF) are struggling with each other over Greece’s debt crisis on whether to give Greece a break on its future massive debt repayments.
According to an analysis by the IMF presented on Bloomberg, if Eurozone member states do not follow through with its proposed measures, Greek debt will rise to 293.8% of GDP by 2060.
The IMF wants all payments on European European loans granted to Greece since its first bailout in 2010 to be deferred until at least 2040 with maturities extended until 2080. Interest payments on loans from the euro area’s crisis fund would be fixed at a maximum 1.5 percent until at least 2045.
Eurozone Finance ministers will meet on May 24 in Brussels to discuss the debt-relief options. European creditors want to postpone the final decision on debt relief until 2018 and reevaluate then “if necessary”; the IMF insists Greek debt repayment is unsustainable and investors need clarity now.
The gist is to find a way to lower Greece's debt-repayment burden without actually cutting the debt itself via a so-called haircut. Instead, Greece's debt would be “re-profiled” – less interest, longer maturities, limits based on growth etc.
Several statements from European officials indicate there could be a solution on the Eurogroup of May 24.
“I am confident … we will not have a new crisis in and around Greece and we will come to a reasonable result,” said Wolfgang Schäuble, Germany’s finance minister, on Thursday after talks with Christine Lagarde, IMF chief, on the margins of a Group of Seven finance ministers meeting in Japan. “Without the IMF there would not be a reasonable outcome” he added. After months of resistance, Mr Schäuble is considering debt relief in exchange for further economic reforms.
Eurogroup President Jeroen Dijsselbloem said he is confident a deal on the Greek aid program can be reached as soon as next week as debt relief talks continue. “We’re in a completely different situation than we were a year ago,” he said in a Bloomberg Television interview Friday. “We’re now entering into a discussion about debt relief”, he added.
Without pointing fingers, Dijsselbloem told CNBC, on the sidelines of the Group of Seven (G7) meeting in Sendai, Japan, that those people advocating major debt relief up-front have moderated their stance and those who have said no relief was needed have also shifted their position “a little bit,” helping to close the gap in talks.
Earlier today, Dijsselbloem met with U.S. Treasury secretary Jack Lew who is also advocating for more flexibility in talks with Greece about how to make the country’s sovereign debt more sustainable.
Meanwhile, the Greek government submitted to parliament yet another reform bill that raises taxes, cuts expenses and sets up a new privatization fund with its foreign creditors in exchange for more bailout funds.
The bill submitted on Wednesday increases the upper band of value-added tax (VAT) to 24 percent from 23 percent, adds tax on fuel and tobacco, and defines the process by which banks can sell non-performing loans, a bane for Greek banks.
Parliament will also vote on a contingency mechanism to automatically impose spending cuts that will be activated only if Athens misses its latest fiscal targets, in order to keep Greece within a 3.5 percent primary deficit target by 2018.
Passing the latest austerity reforms before the Eurogroup meeting on May 22 is one demand of international lenders to ensure the review is wrapped up. It would unlock the next tranche of the bailout program that Athens needs to pay back International Monetary Fund loans, state arrears and ECB bonds maturing in July.