Greece aims for debt relief deal in Feb 2016 after reforms done

Mon Nov 30, 2015 12:11pm EST

ATHENS | BY LEFTERIS PAPADIMAS AND PAUL TAYLOR

Reuters

Greece wants a deal on debt relief with its euro zone creditors in February to remove financial uncertainty and spur economic recovery, its finance minister said, but euro zone officials said that timetable was very ambitious and likely to slip.

Addressing a conference of investors, Finance Minister Euclid Tsakalotos said on Monday that making the ailing euro zone country's debt sustainable was the key to liberating the economy and restoring confidence among depositors and companies.

"If we don't make the critical decision in let's say February 2016, and we push the critical decision back to next summer or even 2017, then all the results will be delayed," Tsakalotos told the American-Hellenic Chamber of Commerce.

Euro zone creditors have said they are willing to consider a debt rescheduling but only once Athens successfully completes a first review of its bailout program, which requires the adoption of a further set of contentious reforms.

Weeks of delays in completing the first batch, which was less challenging politically, suggested the second set would take even longer. A February deadline for a debt deal was therefore very ambitious, euro zone officials said.

The second wave of measures which creditors want completed by mid-December include changes to the pension system to give workers incentives to work and contribute to the system longer.

They also feature overhauling the income tax systems, opening electricity markets and setting up an independent revenue office for tax revenue.

The European Commission's mission chief to Greece, Declan Costello, told the conference the EU wanted all these reforms to be wrapped up by early next year to pave the way for the start of debt relief talks. But the pace of progress depended on the Greek government and lawmakers, he said.

STABILISING GREEK GROSS FINANCING NEEDS

Tsakalotos warned against postponing debt relief, saying that failing to provide a clear pathway for Greece would also leave uncertainty hanging over the whole euro zone.

He said Athens was taking all measures required to complete a successful first review of its program in December and open negotiations on debt relief right away.

Rather than an outright write-down or "haircut" on loans by euro zone partners, which is anathema to top creditor Germany and its northern allies, the relief is to take the form of extensions of maturities, already at an average of 32.5 years, and a longer grace period before debt relief payments fall due.

"We can do a bit more with ... maturity extensions and interest deferrals, but there won’t be a nominal haircut," the head of the euro zone bailout fund Klaus Regling told the Finnish business daily Kauppalehti in an interview.

Euro zone governments, Greece's biggest creditors, agree that debt relief for Athens should be accomplished by capping its debt servicing costs at 15 percent of gross domestic product annually. Athens appears to accept that approach.

"We need to stabilize the gross financing needs, they need to be predictable and affordable," Franciscos Koutentakis, General Secretary for Fiscal Policy at the Greek Finance Ministry, told the conference.

Greece's sovereign debt is projected to reach 187.8 percent of gross domestic product in 2016 from 180.2 percent this year. But thanks to the interest deferrals, grace periods and long maturities, the burden of the debt on the economy is small.

The 2015 debt ratio may be lower, because Costello said Greek growth this year was likely to be stronger than expected when the Commission forecast a 1.4 percent contraction on Nov 5.

The International Monetary Fund has said the debt is clearly unsustainable in the medium-term and has said Greece needs debt relief beyond anything the euro zone has so far been willing to contemplate.

(Additional reporting by Jan Strupczewski; Editing by Hugh Lawson)