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Berlin opens way to Greek debt relief talks

Christopher Furlong | Getty Images

Germany eased its objections to debt relief talks for Greece on Monday as eurozone finance ministers sought to narrow their significant differences with the International Monetary Fund over Athens' €86 billion bailout.

With Greece facing €3.5 billion in debt payments in July that it will be unable to meet without support, eurozone ministers said they were ready for a political push to break a stalemate between creditors over austerity measures and Athens' debt burden.

Pier Carlo Padoan, Italy's finance minister, hailed the meeting as "an important step" towards overcoming the impasse and unblocking payments but IMF officials continued to voice skepticism, particularly over how Greece would apply €3 billion in "contingency" budget cuts if it missed fiscal targets.

The political space for a deal was opened on Monday by the readiness of Wolfgang Schäuble, Germany's finance minister, to explore ways to ease Greek debt repayments. He had, until then, strongly resisted such talks as unnecessary, putting IMF participation in the program in doubt.

Ministers said they would seek an agreement at a meeting on May 24. The package would require Greece to prepare "contingent" budget cutting measures to be enacted if its public finances failed to sufficiently improve, as well as parallel commitments from eurozone nations to deliver on promises of debt relief, covering the short, medium and long term.


The talks framed the discussion around options, such as interest payment holidays or extensions of debt maturities, while deferring the hard political battle over what is actually needed.

"Today was about opening the debate, exploring options and giving political guidance to the technical people," said Jeroen Dijsselbloem, Dutch finance minister and chair of the eurogroup of finance ministers.

Michel Sapin, France's finance minister, said the meeting marked the start of "a real discussion on the debt ... we have, for the first time, addressed this question".

Athens and its eurozone creditors are under pressure to address deep IMF skepticism that Greece can meet its projected debt and deficit targets, specifically a requirement for it to be running a primary surplus of 3.5 per cent of GDP by 2018.

Euclid Tsakalotos, Greece's finance minister, said the planned "contingency mechanism" would see the country automatically implement across-the-board budget cuts if it slipped in meeting fiscal targets. The scheme would nevertheless shield some "very sensitive areas" from spending cuts and would leave a window of three to four months for Greece to assess the impact of the extra belt-tightening and come up with alternative measures that achieved the "same result".

This may not go far enough to satisfy the IMF, whose managing director, Christine Lagarde, reiterated in a letter to EU ministers last week that Greece's budgetary targets were unrealistic and that any effort to meet them should be based around deep economic reform rather than arbitrary, and potentially damaging, cuts.

Mr Tsakalotos told the Financial Times that the IMF was still "skeptical" about Greece's approach but that the organisation was also "engaged to make it better".

He added that, according to budgetary projections backed by the EU, "this mechanism may well not be necessary at all" for Greece to reach its targets.

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Mr Dijsselbloem said eurozone ministers had strengthened Greek proposals for the contingency mechanism, while accepting that outlining specific upfront measures in legislation "does not work politically or legally for the Greeks".

Some creditors may demand, however, more detailed commitments from Athens on what exactly would be triggered.

On debt relief, ministers examined some basic options outlined by the IMF and the European Stability Mechanism, the eurozone's bailout fund.

Governments have firmly and repeatedly rejected any formal writedown of their holdings of Greek debt, leaving them to look at other options, such as longer grace periods and extended payment timescales.

An ESM paper, seen by the FT, outlines a range of options including 5-year maturity extensions, capping annual loan repayments at 1 per cent of gross domestic product until 2050 and capping interest rates at 2 per cent. One more radical move mentioned is to buy out the IMF with cheaper and more long-term ESM loans.

Mr Tsakalotos said the discussion, while very broad at this stage, was a breakthrough: "It's a great relief that we've had this debate on debt," he said. "We are working on a situation where Greece can at last turn the corner."

Eurozone governments have been backed into a tight corner by the clash with the IMF, owing to the fact that the German, Finnish and Dutch parliaments have insisted on IMF involvement as a condition for their supporting the Greek bailout.

The involvement of the IMF is seen by those countries as essential to underpin the economic rigor of the program. Alexander Stubb, Finland's finance minister, reiterated at the close of Monday's meeting that "to be quite blunt, for a country like Finland it would be very difficult to move forward without IMF participation".

He acknowledged that there is "more work for all of us to do" to secure a deal on how to move forward.

EU officials have made clear they do not want messy negotiations to clutter the run-up to the UK's Brexit referendum on June 23 — meaning if no agreement is reached this month, discussions will not resume until shortly before a possible Greek default.