No debt talks until Greece agrees reforms, warns Moscovici - Financial Times

May 5, 2015 at 11:20pm

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May 5, 2015 1:07 pm

No debt talks until Greece agrees reforms, warns Moscovici

Peter Spiegel in Brussels and Stefan Wagstyl in Berlin

An Anti-IMF sign outside the University of Athens

Greece’s eurozone creditors will not discuss how to get the country’s sovereign debt back on a sustainable path until Athens agrees to a new economic reform programme that would release €7.2bn in desperately needed bailout funds, the EU’s economic chief said on Tuesday. 

The talks over the reform programme, which have intensified in recent days, are at the centre of a three-month stalemate between eurozone creditors and the new radical leftist Greek government. The Syriza administration in Athens has resisted many of the reforms in the existing bailout programme but needs the funding to fill its rapidly dwindling coffers.

Pierre Moscovici, the European commissioner for economic affairs, said debt issues “can only be discussed after we have agreed a reform programme. His statement reflects ongoing resistance in eurozone capitals to any form of “haircut” on Greek sovereign debt, which is now mostly held by EU governments and institutions.

Mr Moscovici’s comments come as the International Monetary Fund has suggested eurozone creditors may need to write down some of their Greek bailout loans to ensure the country’s debt levels begin to decline more sharply. 

Officials involved in the talks said the IMF was not seeking large-scale debt relief immediately. Instead, it was warning that any concessions to Athens that allowed the government to post lower budget surpluses — the likely trajectory of the current talks — would require debt relief to make up the difference.

“Six months ago, we all concluded there was no need for debt relief,” said one senior official. “But if there’s a significant relaxation of the programme [targets], the IMF will want to see some debt relief.”

Without a return to sustainable debt levels — or a larger bailout from the eurozone to ensure Athens can continue to pay its bills — the IMF may be forced under its rules to withhold its share of the current bailout tranche, which amounts to about half of the €7.2bn being negotiated. 

Wolfgang Schäuble, the German finance minister, has acknowledged that Poul Thomsen, head of the IMF’s European department, raised the issue of Greece’s mounting debt pile with his fellow eurozone finance ministers during a contentious meeting last month in Riga. Other officials said Mr Thomsen specifically mentioned the possibility of debt relief during the closed-door session.

Mr Schäuble said that before the recent political turmoil in Athens — triggered in December when the previous government failed to get its presidential candidate chosen, forcing parliamentary elections — Greece was moving “more quickly” than planned to reach the bailout programme’s debt targets. Since January’s parliamentary elections, reaching such targets had become “more difficult”, he added. 

Under a November 2012 agreement between Athens and its international creditors, Greece is scheduled to cut its debt levels to 120 per cent of gross domestic product by 2020 and “substantially lower” than 110 per cent by 2022. Debt relief was agreed as a possible way to reach the targets if Greece was able to run a primary budget surplus.

The European Commission’s new economic forecasts, unveiled by Mr Moscovici on Tuesday, showed Greece’s debt levels were rising again amid the renewed financial turmoil.

In February, Brussels forecast Greek debt would fall from 176.2 per cent of GDP in 2014 to 170.2 per cent this year; the new forecasts predict it will rise to 180.2 per cent this year.