Greek FinMin in Frankfurt as report suggests loan maturities may be extended

Greek Finance Minister Yannis Stournaras heads to Frankfurt on Thursday, where he will meet Bundesbank and Deutsche Bank officials, with the discussion about further debt relief for Greece having apparently been rekindled.

Finance Ministry sources admitted on Wednesday that talks about extending the maturities on eurozone loans to 50 years had been “on the table for the past few months.” The admission came after Bloomberg reported that two people with knowledge of the discussions said the option was being debated.

The unnamed sources told the agency that the potential offer would involve maturities on the loans extended to Greece on a bilateral level and by the European Financial Stability Facility (EFSF) being stretched from 30 to 50 years and the interest rate on the money received as part of the country’s first bailout being cut by half a percentage point.

For more detailed discussions to take place, the current review of the Greek consolidation program has to be completed by the troika. Inspectors are expected back in Athens later this month, with both sides aiming to complete the procedure by the March 10 Eurogroup. Then, in April, Eurostat would have to confirm that Greece achieved a primary surplus in 2013. Government sources have suggested this figure could even surpass 1.5 billion euros, higher than previously expected.

Nevertheless, an extension of loan maturities would have little immediate impact on Greek debt repayments. The repayment of 53 billion euros in bilateral loans made as part of the first bailout signed in 2010 does not begin until 2020, while the loans from the EFSF, which amount to 144.6 billion euros so far, have to be repaid from 2023. However, analysts estimate that an extension of maturities to 50 years would result in annual debt servicing costs falling by about 4 billion euros from 2023 onward.

As for the reduction to interest rates, this would only apply to the bilateral loans as the interest Greece pays on loans from the EFSF is equal to the rate at which the fund borrows. The interest charged on the bilateral loans is the three-month Euribor rate plus 0.50 percent, which takes it up to around 0.80 percent. Reducing this by 0.50 percent would mean the government saving about 270 million euros annually.