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UPDATE 2-Greek reforms pave way for debt talks; debt relief timing, scope uncertain
May 2, 2017 / 9:27 AM / 8 months ago

UPDATE 2-Greek reforms pave way for debt talks; debt relief timing, scope uncertain

(Adds debt relief deal prospects)

By Jan Strupczewski

BRUSSELS, May 2 (Reuters) - An agreement on Greek pension and income tax reforms reached on Tuesday morning paves the way for discussions on debt relief for Athens, the euro zone’s bailout fund said, but it’s unclear whether a debt-relief deal could be completed in May.

The agreement on Greek reforms allows experts representing euro zone lenders to recommend to euro zone finance ministers meeting on May 22 in Brussels that they sign off on a review of reforms required by the terms of Greece’s bailout to disburse new loans.

It was also a condition for starting a discussion on medium-to-long-term debt relief for Athens, mainly in the form of extending maturities and grace periods for existing loans.

“This preliminary agreement will now be complemented by further discussions in the coming weeks on a credible strategy for ensuring that Greece’s debt is sustainable,” the fund said.

Greece will not have to start servicing any of the euro zone loans until 2023, so a debt-relief deal now is mainly to boost investor confidence in the country’s long-term economic prospects. It will also score a win for the government, which polls have shown to be less popular than the opposition.

Debt relief would also allow the IMF to join the bailout, now shouldered only by euro zone governments, lending credibility to the programme in a move required by Germany.

The IMF said last month it wanted “a satisfactory assurance on a credible strategy” to restore Greek debt sustainability from the euro zone if it were to join the bailout, which euro zone officials said gave them some wiggle room.

“It does not call for a precise plan, but it wants to have a credible strategy to restore debt sustainability. That is what we are going to look at,” one euro zone official said.

“Can this be decide before May 22? I don’t really know, but I think that if the consensus is we don’t need a detailed roadmap that provides for each individual step, but we need a strategy, it is more feasible, also given the constraints that Germany has with the upcoming elections,” the official said.

“That’s because that would be less of a decision and more of a vision of how get where you want to get in terms of debt sustainability. I don’t know if it can be done by May 22 or not,” the official said.

Officials said discussions on Greek debt relief would take place in various formats over the coming weeks, including at a meeting of G7 finance ministers in the Italian city of Bari on May 11-13.

Any debt relief offer would build on a promise by euro zone finance ministers from May 2016 to keep Greek gross financing costs below 15 percent of its annual economic output in the medium term and below 20 percent beyond that.

But it was likely to stay conditional, keeping the caveats that Greece first has to deliver on all reforms promised under the bailout and that a debt sustainability analysis has to show such debt relief was truly necessary.

“These two disclaimers, even though they may be worded differently, are unlikely to be completely removed,” the official said.

“This is incremental. We will do it step by step. There is no grand design or somebody who knows already today what the outcome will be by May 22,” the official said. (Reporting By Jan Strupczewski; editing by Robert-Jan Bartunek, Larry King)

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