Eurozone, IMF still at odds over Greek debt
Under increasing pressure from the International Monetary Fund to ease Greece’s debt, Eurogroup head Jeroen Dijsselbloem said yesterday that the sustainability criterion for the country’s arrears is that the yearly cost of servicing them does not exceed 15 percent of the Greek gross domestic product. However, the IMF is calling for a “significant” extensions to Greece’s grace period and the repayment period.
Dijsselbloem said any measures to be decided regarding the further restructuring of Greece’s debt will be in the long term and under certain conditions that the eurozone is currently examining, adding that the real need for a lightening of the debt will come in 15 years’ time.
This came as a response to Athens’s insistence on putting the issue on the agenda, effectively telling the government it should not expect any major relief moves.
Dutch Finance Minister Dijsselbloem also told Reuters that the analyses of the European Stability Mechanism foresee no funding problems in Greece during the next 15 years and that “we’ll see whether there is an increase to the funding needs in the next 30 years.” However, he noted that the definitive decisions on the issue will only be made after consulting with the members of the eurozone, the European Commission and the IMF.
Poul Thomsen, the IMF’s director for Europe, reiterated the Fund’s po- sition that, as it stands, the Greek debt is unsustainable and requires interventions of a “significant” size by the creditors.
“We think the Greek debt has become highly unsustainable,” Thomsen told a news conference on the sidelines of an IMF meeting in Lima yesterday. “We think that Greece cannot deal with its debt just through reforms and adjustment, without debt relief,” he said.
Thomsen added that the discussion on how to provide debt relief to Greece has shifted from a nominal haircut on the stock of its debt to capping gross financing needs, but without referring to the 15 percent threshold. “What the exact targets should be, we will have to discuss, but there is no doubt in our mind that if Europe wants to go the route of providing relief by lengthening the grace period and lengthening the repayment period, we are looking at a significant lengthening of the grace period and significant lengthening of the repayment period,” Thomsen said.
The Fund has made it known it will only take part if the eurozone takes some new debt relief measures, and Dijsselbloem stressed that he desires the participation of the IMF in the new bailout program for Greece, before adding that the loans offered by the IMF have a far higher interest rate than the European ones and part of the current program concerns the gradual replacement of the IMF loans with more European ones.
Speaking to Bloomberg, the Dutch minister commented that “it will take one or two additional measures and assurances [for the IMF] to participate. One of them is the social security reform, plus certain assurances on the fiscal issues and of course the debt; we will come to it in November,” said Dijsselbloem.
He did add that “approach is becoming ever more clear. We will examine how Greece will be able to manage its debt on an annual basis.” He said that, in this context, “we have done a lot to reduce the interest that Greece will have to pay and we have granted a repayment period of 32.5 years. Therefore, there should be no problem with the management of the debt; but we will discuss with the IMF on that. I am sure we will reach an agreement.”
Prices continued to drop in Greece for a 31st consecutive month in September as the Consumer Price Index declined 1.7 percent on an annual basis, the Hellenic Statistical Authority announced yesterday. Still, the value-added tax hike on food as of July 20 sent this category 3.7 percent higher last month.
Eurogroup president Jeroen Dijsselbloem said Greece’s debt will be sustainable if its servicing does not exceed 15 percent of the country’s GDP.