Eurozone creditors are expected to disburse new loans to Greece this month and are working on debt relief measures, the head of the bloc’s finance ministers said on Monday, steps that should help underpin its economic recovery.
Greece’s 86-billion-euro bailout program, its third since 2010, is due to end in August and international lenders are debating how to ensure the country makes its exit on a sustainable footing.
Among options under consideration in Brussels are support measures that could run into tens of billions of euros and help ease servicing costs on a public debt pile that, in terms of economic output, is among the biggest in the world.
Greece’s economy expanded by 1.6 percent last year after emerging from a long recession. The European Commission forecast growth of 2.5 percent this year and next, but that rate could slow if reforms stall after strict monitoring by the lenders ceases.
The eurozone bailout fund is expected to pay out a 5.7 billion euro loan later in March, Eurogroup head Mario Centeno told a news conference following the finance ministers’ monthly meeting, after Greece met commitments under the third review of its rescue program.
To successfully exit the program, a fourth review of 88 reform actions must be completed before August. This would allow Greece to access other loans.
“I am confident Greece will implement all remaining deliverables to conclude the program successfully,” Centeno said.
They include new privatizations and reform of the gas and electricity markets, which he said were preconditions to granting Greece new debt relief.
Debt relief
Technical talks are already ongoing on one of the possible measures that would grant Greece additional debt relief after it benefited from extensions of its debt maturities and other short-term aid in past years.
Centeno said that work was under way on linking future eurozone debt relief to the rate of Greek economic growth, with the objective of granting support if growth slowed.
Other more substantial measures will be discussed at the next meeting of finance ministers next month, Centeno said.
Among possible measures are the use of funds that will remain unused after the bailout program ends on August 20.
This could be as mush as 27 billion euros, and could be used to buy out Greek debt falling due in the next five years and replace it with cheaper and longer-term loans from the eurozone bailout fund, the European Stability Mechanism (ESM).
Another option could involve the return of profits made by the European Central Bank on Greek bonds.
Both measures would come with conditions attached, mostly linked to the implementation of reforms already approved but that would take years to fully execute.
The debate on conditionality is still wide open. Greece could ask for a new credit line after its aid programme ends, but this is likely to be seen in the country as a new wave of austerity, triggering a political backlash.
Alternatives could entail enhanced supervision by EU institutions over Greek reforms after the bailout ends.
Without a financial safety net Greece could face market pressure that would increase debt servicing costs.
Greece is also building a cash buffer, which could reach 20 billion euros, to bolster a full return to debt markets and support sustainable growth.
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