The Greek bailout program is not heading for a crisis, the head of the Eurogroup of euro zone finance ministers Jeroen Djisselbloem told CNBC on Thursday, saying that a deal on a reform package that will unlock more loans to the country was near.
“We’re getting very close (to an agreement over reform targets) so I’m not for all this crisis talk. If we concentrate on where we are and try and push it through we’ll get it done far before the summer,” he said, saying that there was “hopefully” no danger of Greece facing a credit line before more bailout money can be released.
He added that once Greece hit targets over pension reform, income taxation and privatization, among other issues, “then we will come to debt and see what needs to be done now or later.”
No Greek debt breakthrough this week
According to him, there will be no breakthrough on the Greek bailout talks in Washington this week, but eurozone ministers will seek a deal next week in Amsterdam.
“In Amsterdam we will have more time, everyone around the table and try to really get somewhere,” the chairman of eurozone finance ministers told reporters on the sidelines of International Monetary Fund and World Bank meetings in Washington
He said eurozone lenders were adamant that the key to a deal was sticking to the assumption that Greece’s government had to reach a 3.5% of GDP primary surplus in 2018.
“I don’t see any flexibility on the 3.5% in 2018 because it was one of the anchors of the agreement of last summer. So that’s going to take a huge effort on the part of Greece but I think it can be done,” Dijsselbloem said.
IMF: 3,5% surplus is an unrealistic goal
The IMF, one of the lenders to Greece, believes that asking Athens to maintain a surplus of that size for decades after 2018 – an assumption of the euro zone programme – is unrealistic. The Fund believes the target for the surplus – the budget balance before debt servicing – should be lowered and that eurozone governments, who are Greece’s main creditors, should offer the country deeper debt relief to compensate.
“I think the IMF is right, the surplus target is courageous, so the question is how to deal with the uncertainty around that, what do we do ‘if’,” Dijsselbloem said. He noted that no-one knew exactly how quickly Greece’s economy would grow in the coming years and what its rate of inflation would be, yet those indicators were crucial to assess the ability to repay loans.
He said eurozone lenders and the IMF would eventually align their views on where Greece stood now, what fiscal effects would materialize from reforms that Greece was implementing and what the most likely scenario was for the future.
“We will try to close these differences and baseline assessments and then we will go to the political level, because in the end it is up to the ministers to decide if Greece has done enough,” Dijsselbloem said.
“There is no point in disagreeing on something that is by definition uncertain. The question is how to deal with it if it creates problems for debt servicing. And that is something we can negotiate,” he said. “So we need a political debate on how we are going to manage that uncertainty,” Dijsselbloem added.
A sense of urgency among lenders and Greece alike
Dijsselbloem said there was a sense of urgency among the lenders and Greece alike because Athens needed new loans to repay 3.5 billion euros in maturing debt in July and to regain the confidence of investors.
He added that the current approach of euro zone governments and the IMF to Greek debt relief was to cap Greek debt servicing costs at 15% of GDP annually and offer support to Athens if the costs rose above that ceiling. “As long as the annual debt service is below 15%, Greece should be able to manage it on its own. If it goes above that, we stand ready to do more to support them,” he said.
That approach includes changes in Greek economic growth rates and the resulting change in the country’s ability to pay, said Dijsselbloem. While ruling out debt haircuts or write-offs, he said the euro zone is willing to extend maturities, grace periods and lower interest rates to cut Greece’s annual debt servicing burden.
The IMF wants eurozone lenders to offer clear steps to make Greek debt sustainable, making its own financial participation in the latest, third bailout for Greece conditional on that.
Source: Reuters
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