Eurozone Finance Ministers Agree to Some Debt Relief for Greece’s Bailout

Maturities extended and interest rates locked on some Greek debt but no agreement yet on IMF participation

The Wall Street Journal

By VIKTORIA DENDRINOU and  NEKTARIA STAMOULI
Updated Dec. 5, 2016 4:10 p.m. ET

BRUSSELS—Eurozone finance ministers, seeking to get the International Monetary Fund to participate in Greece’s bailout, agreed on a package of short-term measures that could ease the country’s debt load by around a fifth in 2060.

The ministers, gathering in Brussels for their monthly meeting on Monday, had hoped to move closer to agreeing on a set of overhauls Greece must enact under its bailout—which could reach €86 billion ($92.3 billion)—as well as a series of debt-relief measures from its European creditors. Both steps are required to get the IMF to participate in the bailout.




But while the finance chiefs approved some debt relief measures, they didn’t reach enough common ground to get the IMF to agree to lend to Greece again. The IMF is expected to decide whether it will join Greece’s bailout once a second debt review is completed.

“More discussions are needed but clearly we are still well away from an agreement,” an IMF official said.

Several eurozone countries—led by Germany and the Netherlands—have demanded IMF participation as a condition for them to agree on fresh loans.

“The IMF reconfirmed its intention to recommend to the board a new financing arrangement for Greece once agreement on the second review is reached,” said Jeroen Dijsselbloem, the Dutch finance minister who presided over the meeting.

But he said there was no agreement among eurozone countries on the targets for Greece’s primary surplus—the government’s budget balance excluding interest payments—for the years after 2018. The size of the surpluses that Greece is expected to run is key in determining the extent of its debt relief.

The IMF official said that the fund would need to know the primary surplus targets for the medium and long term before it could assess the sustainability of Greek debt.

Easing Greece’s debt load is a crucial condition for the IMF to participate in the bailout and provide fresh loans.

In May, Greece’s creditors agreed on a framework of short-, medium- and long-term measures aimed at bringing Greece’s debt down to levels viewed as sustainable without burdening European taxpayers.

The short-term debt relief agreed Monday includes three sets of measures. The most effective ones would lock the interest rate Greece pays on some current and future loans, shielding the country from paying higher interest rates in future.

The total impact on the country’s debt-to-gross domestic product is estimated at around 20 percentage points.

The measures range from exchanging floating-rate bonds held by Greek banks as part of the country’s bank recapitalization for fixed-rate ones, and using interest-rate swaps to fix Greece payments on some European Stability Mechanism loans. They also include making some future disbursements to Greece in fixed-rate loans.

The IMF has been pressing for deeper debt relief than the eurozone has been willing to grant, and officials say the short-term measures proposed by the ESM—and which finance ministers are expected to endorse—wouldn’t be sufficient to meet the fund’s requirements.


However, Germany and other eurozone countries have been reluctant to discuss further debt restructuring beyond the short-term measures until 2018, after elections in Germany and the Netherlands.

Meanwhile, Greece’s fiscal outlook and primary surplus targets under its bailout remain key.

Achieving primary surpluses is a central goal of Greece’s bailout plan, which foresees the government reaching a surplus of 3.5% of gross domestic product by 2018 and maintaining that level in the medium term. But creditors disagree on the level of fiscal discipline needed by Athens.

European creditors say that the 3.5% target is reasonable, but the IMF believes that such a target is unsustainable in the medium term and says the target should either be lowered or Greece should take more austerity measures to meet it in the medium term—a decision that would be politically problematic.

Late November, Greece’s Prime Minister Alexis Tsipras warned that a possible failure of the continuing negotiations for the country’s second bailout review “could lead to elections.”

Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com and Nektaria Stamouli at nektaria.stamouli@wsj.com