The eurozone turned its attention tentatively on Monday to helping Greece tackle its huge debt repayments, with a view to a deal on May 24, after Greek lawmakers passed unpopular pension and tax reforms one critic called “a tombstone for growth”.
The preliminary talks, which are likely to focus on ideas to cap Greek debt servicing costs at 15 per cent of GDP or less, are going ahead despite opposition from fiscally hardline Germany, which does not believe any relief is needed.
“We will discuss when, if, under what conditions this could take place. This is the first discussion we will have on it, I don’t expect any definite conclusions,” said the chairman of eurozone finance ministers, Jeroen Dijsselbloem.
“We won’t do a debt cut. But one can always talk about maturities and interest. We will try to make a breakthrough on May 24,” he said.
The package of reforms passed in Athens earlier on Monday was one of the conditions to unlock at least €5.4bn in new loans from its latest bailout.
The other condition is a set of contingency steps that would be legislated now but only kick in if Greece veered off its path to reach a primary budget surplus of 3.5 per cent of national output in 2018. A primary surplus excludes interest payments.
“A … deal needs to address three issues: reforms – we are there – the contingency mechanism – we are almost there – and the debt issue – we are starting the discussion,” European Commissioner for Economic Affairs Pierre Moscovici said on entering the meeting.
The debt talks are related to the reforms because the International Monetary Fund believes debt relief is necessary in Greece and will not sign off on a review of Greek reforms unless such relief is granted.
Germany believes Greece does not need any relief, especially given that it does not have to service its debt until after 2022, when a 10-year grace period expires.
But it wants the IMF’s blessing on the Greek reform review for political reasons. German Finance Minister Wolfgang Schaeuble and Greek Finance Minister Euclid Tsakalotos met in Brussels on Monday morning ahead of the eurozone ministers’ meeting to work out a compromise, officials said.
“I’m still confident that we’ll get a solution in May,” Schaeuble said on entering the talks of the eurozone ministers.
Earlier, Greek Prime Minister Alexis Tsipras had defended the pension and tax reforms during a parliamentary debate, but the leader of the conservative opposition New Democracy party, Kyriakos Mitsotakis, summed up the opposition to more austerity: “The measures will be a tombstone for growth prospects.”
The contingency reforms are an even bigger headache, with Tsakalotos arguing that – quite apart from the political difficulty of seeking yet more savings – it would be unconstitutional to legislate such measures.
Yet without the contingency package the IMF does not want to sign off on the next loan disbursement. Even though the IMF does not have a bailout now in place for Greece, its go-ahead for any European disbursements is politically a must for Germany and half a dozen other eurozone countries.
The contingency measures are to amount to savings of 2 per cent of gross domestic product – the difference between the IMF’s and European forecasts for the 2018 primary surplus under current reforms, including those approved on Monday.
The IMF believes Greece will only reach a surplus of 1.5 per cent.