Debt talks between Athens and its creditors should include lowering a target for Greece’s primary budget surplus from 3.5 percent to 2 percent of gross domestic product after 2018, Greece's central bank chief said on Friday.
Yannis Stouranaras said the move could cut Greek debt to below 100 percent of GDP in 2030 and to 89 percent in 2035, if it’s combined with easing future interest rate payments on bailout loans over 20 years and extending loan maturities by 22 years.
“A discussion on debt relief should be combined with easing the final fiscal target,” Stournaras said in a speech. That would help economic recovery and boost growth without hurting debt sustainability.
“Only Ireland managed to maintain a primary surplus of 3.5 percent of GDP for a relatively long period,” he said.
Greece and its lenders started talks on long-desired debt relief earlier this week as part of a review of its bailout progress. The review has dragged on for months because of a rift between the European Union and the International Monetary Fund over Greece’s fiscal progress.
They aim is to conclude the talks by May 24 and unlock funds for Greece, which needs to pay off IMF loans and ECB bonds maturing in July, along with state arrears.
A document by the European Stability Mechanism says that under the main scenario, Athens would maintain a primary budget surplus of 3.5 percent of GDP from 2018 until 2025. After that, the target would start declining to stay at 1.5 pct in 2040-2060.
The IMF says Athens is not likely to meet and maintain a primary surplus of 3.5 percent in 2018 and onwards without additional austerity measures and significant debt relief. It has set that as a condition for its participation in Greece’s current 86-billion-euro bailout.
The Greek government hopes that easing its debt burden can bring back investors and convince Greeks that their sacrifices are paying off after seven years of belt-tightening.
A successful conclusion of the review would also lead to the gradual return of deposits and the reinstatement of the European Central Bank’s waiver for Greek banks, Stournaras said.
The ECB ditched its waiver on a minimum credit rating requirement on Greek debt last year, cutting off Greek banks from cheap lending.
Reinstating the waiver, and Greece’s participation in the ECB’s quantitative easing program, would have a positive impact of 400 million to 500 million euros on Greek bank results in 2017, Stournaras said.