Bailout Talks

EU Commissioner Calls on Euro Zone to Cut Greek Debt

  • Why it matters

    Why it matters

    If euro-zone ministers fail to agree on another ESM loan to Greece next Thursday, Athens will default on an $8-billion repayment early July – and send the euro zone into renewed turmoil.

  • Facts

    Facts

    • Ministers of the 19-nation euro zone will meet next Thursday in Luxemburg with the intention of paying out another chunk of loans to Greece.
    • IMF head Christine Lagarde is willing to continue lending to Greece to give European creditors more time to settle an ongoing dispute over debt relief.
    • German Finance Minister Wolfgang Schäuble has insisted on IMF participation in any new assistance plan, but the IMF first wants some Greek debt to be forgiven.
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    Audio

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Greek PM Tsipras meets with European Economic and Financial Affairs Commissioner Moscovici at the Maximos Mansion in Athens
Mr. Moscovici’s comments are probably music to the ears of Greek PM Alexis Tsipras (left). Source: Reuters.

With a Greek sovereign default looming early July, when Athens has to repay some €7.3 billion, or $8.2 billion, in maturing loans, the European Union’s powerful commissioner for economic and financial affairs has called on the euro zone finally to agree a way to reduce Greece’s debt burden when finance ministers meet on June 15.

“We must find a solution at the next meeting,” Pierre Moscovici told Handelsblatt’s sister publication WirtschaftsWoche in an interview published on Friday. “No one would understand if we were to create a new crisis out of nowhere,” he said, adding the finance ministers from the 19 euro-zone countries had “a duty to find a compromise.”

“We’re telling them: Do or die. That just doesn’t work.”

Pierre Moscovici, European Commissioner for economic and financial affairs

Athens faces insolvency in July if it does not receive the next tranche from the current 86 billion-euro bailout program in time. The euro-zone’s bail-out fund, the European Stability Mechanism, has plenty of fire power to avoid this. But whether finance ministers will order it to transfer funds to Greece remains uncertain.

Greece’s sovereign creditors disagree about conditions for the next loan. The International Monetary Fund (IMF) said it could continue co-financing financial assistance only if euro-zone nations reduce Greece’s debt burden. But German finance minister Wolfgang Schäuble opposes such a move, and insists that the IMF keep lending.

In a long search for a compromise, the IMF last month said it would be willing to participate in a new loans for Greece. But the Washington lender suggested it would only pay the Greek government if Athens could prove its  debt to be sustainable. Greece quickly rejected the proposal – and no new attempt to end the stand-off has been made.

Mr. Moscovici voiced support for Greece. The country had already shown “a lot of effort” to fix its ballooning debt by passing many reforms under the supervision of Brussels and the IMF. He stressed that he did not view last month’s proposal as a sufficient basis for discussion. “We’re telling them: Do or die. That just doesn’t work.”

Indeed, there does appear be movement. IMF head Christine Lagarde last week told Handelsblatt that she would consider giving euro-zone countries “a bit more time” to find a common stance. On Thursday, IMF spokesman Gerry Rice told Reuters talks with European creditors were “making progress” and there was now hope an agreement.

Mr. Moscovici, French finance minister until he switched to Brussels in 2014, also told WirtschaftsWoche he was confident France would also adopt more economic reforms – as the German government hopes it will. “There is awareness among the French that changes are necessary to make the economy more competitive,” he said.

Germany’s main political partner will elect a new parliament in June, a month after installing centrist Emmanuel Macron as new president. Berlin and Brussels hope he will boost the French economy and the EU. Mr. Moscovici signaled his confidence: “In France, people have always gathered behind the President in difficult times.”

This article was originally published in WirtschaftsWoche, a sister publication of Handelsblatt. Jean-Michel Hauteville, an editor with Handelsblatt Global in Berlin, also contributed to this report. To reach the author: wirtschaft@wiwo.de.

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