Greece can expect further debt relief from its official creditors but must show it is building an efficiently-run modern economy to convince markets of its rehabilitation, the head of Europe’s rescue fund said.
Athens is on course to exit its 86-billion-euro ($106 billion) bailout, its third since 2010, this summer without further financial assistance from official lenders and the government is keen for a “clean exit”.
Greece’s 185 billion euro economy is slowly recovering from its debt crisis and subsequent recession and is forecast to grow by 2.5 percent this year and in 2019. The government is gradually building a cash buffer of about 18 billion euros.
Athens and its eurozone lenders are expected to flesh out a French-proposed mechanism presented in June, which will link debt relief to Greek growth rates.
“We all agree that Greece’s debt needs to be manageable. But additional debt relief is not the most important thing to achieve that,” European Stability Mechanism (ESM) Chief Klaus Regling told a conference in Delphi, outside Athens.
“What Greece needs in the first place is growth, continued reform, and a business-friendly economy with an efficient public administration,” he said.
The ESM and the EFSF are Greece’s largest creditors, together holding more than half of its 332 billion euro public debt, a load equal to nearly 180 percent of economic output.
In May 2016 Greece’s creditors laid out a debt relief roadmap, promising measures to be implemented in the short, medium and longer term.
The ESM delivered the first set last year, effectively lowering the risk that a rise in interest rates would mean higher debt servicing costs for Greece in the future.
In the coming months, eurozone finance ministers will look into whether Greece needs more relief to make sure that its debt load is sustainable.
“These medium-term measures may concern maturity extensions, the waiver of certain extra interest payments on a portion of the EFSF loans, as well as redistributing profits from Greek bonds held by the ECB back to the country,” Regling said.
Greece’s interest payments are small until 2022, as they have been deferred. The average loan maturity is 32.5 years, meaning the country will pay back the last euro on its EFSF/ESM loans in 2059 – 41 years from now, the ESM’s chief said.
“It is very important for us that Greece thrives and pays back its loans,” Regling said. “The medium term measures could be linked to a mechanism to define what happens if growth falls short of expectations - or is better than expected.” [Reuters]