Greece’s lenders facing large gap over approach for debt relief

With just over a week until eurozone finance ministers gather with the aim of concluding the Greek bailout review, Greece’s lenders still have differing views on how to approach the issue of debt relief, officials with knowledge of the talks have told Kathimerini.

A meeting of the Euro Working Group (EWG), made up of the technocrats that advise the eurozone finance ministers, ended on Thursday without any agreement on how to move forward with the debt reduction component of the program, which is crucial for the International Monetary Fund to remain involved.

The gap between the eurozone and the IMF on the debt issue was highlighted at the EWG. European lenders indicated that they mostly favor actions to reduce Greece’s debt being taken gradually over the coming years and being split into three groups: Short-, medium- and long-term. The IMF’s European director, Poul Thomsen, who took part in the meeting via teleconference, insisted that the measures should apply immediately and over the course of the Greek program, which runs until 2018.

The eurozone and the IMF also disagreed over the debt sustainability analysis. The Fund sees Greek debt growing much more dramatically than the Europeans if relief measures are not applied. A European official told Kathimerini the differences between the creditors are “huge.”

The aim now appears to be a compromise on the way forward so that the review can be completed by the May 24 Eurogroup, clearing the way for Athens to receive a minimum of 5.7 billion euros in bailout funding, with another 3-5 billion following based on certain milestones being reached.

Speaking to Sunday’s Kathimerini, European Commission Vice President Valdis Dombrovskis said that medium- and long-term debt relief measures would not be finalized by May 24 but that a “roadmap” of steps to reduce Greece’s repayments would be ready, with the aim of convincing the IMF to retain its role in the Greek program.

Greece also has to tie up some loose ends by next week’s Eurogroup, such as legislating another set of tax rises worth 1 percent of gross domestic product. Dombrovskis indicated that Athens had ignored the Commission’s advice that spending cuts would have damaged the country’s growth potential less than tax hikes.