Greece Readies Debt Relief Plea

Finance Minister Yannis Stournaras will carry Greece's case to Brussels
Finance Minister Yannis Stournaras will carry Greece’s case to Brussels

With a primary surplus in hand, Greece is set to ask the eurozone to approve some sort of relief from the 240 billion euros it has borrowed from international lenders, reportedly a 50-year repayment schedule, lower interest or an outright cut.

Finance Minister Yannis Stournaras, who had previously said the country wouldn’t need it, is now due to present the proposal to his peers in the other 17 countries that use the euro.

If Greece seeks a so-called “haircut,” a reduction in the principal it owes, the cost for generations of wild overspending would be passed on to taxpayers in other eurozone countries.

While German Chancellor Angela Merkel, whose country is putting up much of the loan monies from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB), has ruled out a haircut, Greece has lined up a series of other options.

The Troika is in a box, though, as it had promised that once Greece reached a primary surplus – which doesn’t include interest on debt, the cost of running cities and towns, state enterprises, social security or some military expenditures – that it would have to consider debt relief.

Greece’s statistics agency ELSTAT and its EU counterpart, Eurostat, have certified a primary surplus of 1.5 billion euros ($2.08 billion) although Prime Minister Antonis Samaras, whose coalition government led by his New Democracy conservatives faces a tough test in elections this month for Greek municipalities and the European Parliament, has promised some 70 percent of it to victims of the austerity imposed on Troika orders.

Despite the loans, Greece’s debt is still 175 percent of gross domestic product (GDP), an amount many analysts say is unsustainable even though Samaras and Stournaras say the country is on the way to recovery, having recently been able to float a 3-billion-euro five-year bond after four years outside international debt markets.

The matter will probably be referred to the Euro Working Group, with the technical team that advises eurozone finance ministers being asked to come up with proposals on how to reduce Greece’s debt.

“Discussions will begin but there are a number of preconditions to be met, not just the primary surplus,” a high-ranking European Union official told Kathimerini. “That is why the negotiations will take place when the next [Troika] review [of the Greek adjustment program] has been completed.”

The newspaper said there is reluctance within the eurozone to make any firm commitments ahead of European Parliament elections on May 25, with critics saying Samaras is looking to make political capital out of the surplus and debt-relief request.

If the Troika agrees to some form of restructuring it would also lose leverage the next few months to ensure that the government meets its structural reform commitments.

The first part of the Greek plan consists of stretching to 50 years the maturity of loans worth 192.8 billion euros borrowed from the eurozone.

The Greek Loan Facility (GLF) loans amount to 52.9 billion euros and have an average maturity of 17 years. The 139.9 billion euros Greece has received from the European Financial Stability Facility (EFSF) has an average maturity of 30 years.

An extension could reduce Greece’s debt repayments over the next couple of decades by about six billion euros a year.

The second part of the proposal consists of switching to a fixed interest rate on the GLF loans. Currently, Greece is paying a rate of 0.83 percent (Euribor plus 0.50) but as the Euribor interbank rate is expected to rise over the next few years, Greece wants to ensure lower repayments by fixing it at a low rate.


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