Greece to seek debt servicing at fixed rates in relief talks

Greece will ask its international lenders this week to lock annual debt servicing costs on its official loans at a fixed interest rate to make its debt mountain more manageable.

At the spring meetings of the International Monetary Fund in Washington between April 15-17, Athens will also suggest a proposed 15 percent of GDP annual cap on debt servicing costs is divided, with 8 percent for bond and loan repayments and interest – the biggest cost – and 7 percent for paying down outstanding T-bills.

It is seeking to fix its presently fluctuating rate on its EU bailout loans in order to have a buffer against possible higher rates if the ECB starts raising them again, sources familiar with Athens’s thinking said.

"In that way they will lock their annual debt servicing cost for the coming years, and will give the investors a clear picture about how much Greece will have to spend each year," one source told Reuters on condition of anonymity.

"It will work as a guarantee that Greece will be able to service its debt without any upsets," the source said.

With a mountain of debt projected to reach 174.4 percent of national output, or 337.6 billion euros ($381.52 billion) this year, debt relief has been the rallying cry of Greece’s left-led government.

Greece has received three international bailouts since 2010.

Current debt repayment projections do not include the last bailout worth up to 86 billion euros it signed up to in August.

From 2021, when the country will start repaying the loans of the first 2010 bailout programme, annual payments on just the principal and interest on bonds and loans will spike and reach 15 percent in 2022 and 2023. That excludes the additional cost of T-bill repayments.

Athens has a measure of sympathy from the International Monetary Fund to its call; a draft IMF memorandum seen by Reuters this week urges Greece’s European partners to grant Athens substantial relief on its debt, which it sees remaining ‘highly unsustainable’.

But German Finance Minister Wolfgang Schaeuble has said he sees no need for debt restructuring at present.

Greek yields marched towards a six-week high on Wednesday after the IMF painted a grave outlook for its economy, and renewed calls for its reluctant EU partners to grant substantial debt relief. [Reuters]