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A key decision on debt relief for Greece might not happen until June

  • Eurogroup President Mario Centeno cautioned that this divergence between Europe and the IMF might not be bridged before June.
  • Greek Finance Minister Euclid Tsakalotos presented a growth plan that the Greek government will deliver after the end of the financial assistance in August
  • Failure to agree on debt relief to Greece would compromise the credibility of providing financial assistance to European countries.
Greek Finance Minister Euclid Tsakalotos attends a eurozone finance ministers meeting in Brussels, Belgium May 22, 2017.
Francois Lenoir | Reuters
Greek Finance Minister Euclid Tsakalotos attends a eurozone finance ministers meeting in Brussels, Belgium May 22, 2017.

Greece might not get the complete picture of how its debt is going to be restructured before June, the head of the euro zone's finance ministers said Friday.

The International Monetary Fund (IMF), Greece and European creditors have been at odds over how to reduce the country's debt burden. The idea on the table is to link Greece's future growth rates to how much interest it will pay on its loans — the higher the growth rate is, the more interest Greece can pay. But the IMF and Europe do not have the same growth forecasts and have therefore been unable to reach a deal on this issue.

Mario Centeno, who heads the group of 19 euro zone finance chiefs called the Eurogroup, cautioned that this divergence between Europe and the IMF might not be bridged before June.

"The final decision on the implementation of the debt measures will be taken, if needed, at the end of the program, conditional on full-implementation of the program," Centeno told reporters in Sofia, Bulgaria. The reference to "end of the program" means June, though the financial assistance to Greece comes to an end on August 20.

Centeno also said: "On the basis of a successful review, the Eurogroup will decide in June all the elements that can help facilitate the exit of Greece from the program in August."

Greece — still recovering from the euro zone debt crisis of 2011 — requested the current program in 2015 and it has since then been promised some debt relief. But opposition from some European countries and disagreements with the IMF have postponed the issue. The Greek government has, therefore, welcomed finally having a deadline to see the debt measures fully laid out. Failure to agree on debt relief to Greece would not only make Greece's return to the markets more abrupt but also compromise the credibility of providing financial assistance to European countries.

The current impasse over debt will have to be resolved by June 20, when the finance ministers gather in Luxembourg for their monthly meeting.

A new growth plan

Greek Finance Minister Euclid Tsakalotos presented to his colleagues Friday a growth plan that the Greek government will deliver after the end of the financial assistance in August — an attempt to give creditors and markets a guarantee that the country will keep reforming the economy even without external help.

He told CNBC about the specific details of his growth plan: "We (have) a strong social program because it is our program now and it has to be credible to Greece society so there's an increase in the minimum wage and return of collective bargaining."

"And at the same time we have indicated three priorities for growth, because if you have 15 priorities you don't have any priorities," he said, outlining that the three points of focus will be speeding up reforms in the judicial system, reforming the public administration and improving the business environment.

However, the sooner there's a deal on the debt issue the better. Stretching it out until near the end of the deadline might complicate disbursements from the IMF, due to technical reasons. During the IMF-World Bank Spring meetings last week, IMF officials said that time is running short for the institution to be able to disburse money to Greece.

The IMF said last year that it would provide Greece with 1.6 billion euros ($1.93 billion) in funding, after an agreement on debt. It's not the money in itself that Greece needs, but the credibility stamp that the IMF brings to the program.

Benoit Coeure, executive board member of the European Central Bank (ECB), told reporters Friday that the clearer the debt measures are, the easier it will be for Greece to regain market access.

"The more frontloaded (the debt measures) can be, the more automatic they can be or the less conditional they can be, the more they can contribute to a more confidence-building exercise between Greece and the capital markets," the French economist said.

Markets will treat Greece differently

However, Coeure warned that markets could have a different view on Greece, compared to the one the institutions have held with the country.

"Starting 21st of August, the day after the program ends, if Greece opts for a clean exit from the program, which was what the Greek government wants to do, then what has been so far a conversation between the Greek government and the institutions and the Eurogroup will become a conversation between the Greek government and the capital markets, which is a quite different discussion," Coeure warned.

He recalled that Greece does not have any investment rating grade from any of the main ratings agencies. This could potentially be a problem for Greece when trying to finance itself in the markets, as it could mean higher yields and repayments.

The Greek government made it clear to the European creditors Friday morning, during the meeting in Sofia, that it will not ask for additional cash to use after the program ends in August.

European creditors and the IMF are scheduled to return to Greece on May 14 to work on the final review of the program. Greece has to implement 88 measures to successfully end the final step of its program.