ESM Plan

A Little Debt Relief for Athens

  • Why it matters

    Why it matters

    A dispute is brewing over a plan by the European Stability Mechanism to safeguard Greece against the risk of rising interest rates. The plan would increase Greece’s costs until 2022 but lower them in the long term.

  • Facts


    • The ESM, which replaced the EFSF as the bloc’s bailout fund in 2012, began to disburse Greece’s third bailout last year.
    • The ESM plan consists of three measures: lengthening the term of the EFSF loans, waiving a fee and protecting Athens from rising interest rates.
    • The plan could reduce Greece’s debt relative to GDP by 21.8 percent by 2060.
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People sit in a cafe of a hotel’s roof garden with the Acropolis hill in the background in central Athens
Could Athens be seeing some debt relief? Source: Reuters

Euro zone countries are preparing some minor debt relief for Greece.

The E.U. bailout fund, the European Stability Mechanism, would be used to safeguard the country against the risk of rising interest rates. The details are laid out in an ESM document that Handelsblatt has obtained.

The ESM replaced the European Financial Stability Facility or EFSF as the bloc’s bailout fund in 2012. In the summer of 2015 Greece’s troika of creditors – the European Union, the European Central Bank and the International  Monetary Fund – agreed to a third bailout for the struggling country since 2010 worth €86 billion, which was tied to a series of economic reforms.

The German director of the ESM, Klaus Regling, plans to present the new measures to the euro zone’s finance ministers next Monday. Officials at the German finance ministry said that they support the proposed short-term debt relief measures in principle. The prospect of such measures was already held out to Greece in May.

Three different measures are listed in the document. First, the average term for loans issued by the old bailout fund, the EFSF, is to be increased by four years. Second, a fee could be waived that would save Greece €220 million ($233 million) next year.

The main measure, however, is to protect Athens from the risk of rising interest rates. This would enable the country to benefit from today’s extremely favorable conditions in the long term.

All the measures combined could reduce Greece's debt level relative to its gross domestic product by 21.8 percent by 2060.

To achieve this, the ESM could issue bonds with a maturity of up to 30 years, or it could use so-called interest rate swaps. Although this would initially lead to higher costs for Athens, until 2022, the country’s costs would then go down until 2060. According to ESM calculations, all the measures combined could reduce Greece’s debt level relative to its gross domestic product by 21.8 percent by 2060. Nevertheless, these calculations are subject to uncertainty.

It is clear that the program would improve the country’s debt sustainability. This is important for the International Monetary Fund, which the Europeans want to see continuing to participate in the bailout program. According to German government sources, the IMF could now incorporate the short-term measures into its analysis of debt sustainability.

However, the IMF insists on ongoing debt relief, which German Finance Minister Wolfgang Schäuble opposes. He considers debt relief to be counterproductive, especially since the Greek economy has been improving lately.

It’s an argument the IMF cannot accept. In light of the long downturn, it is hardly surprising that growth is now picking up, said an individual familiar with the IMF analyses. According to this individual, the Washington-based fund also considers it possible that Athens many finance itself again on the markets, even at higher interest rates, but noted: “This doesn’t mean that the debts are sustainable.”

According to the source, Mr. Schäuble and other finance ministers could hold a teleconference this weekend with representatives of Greece’s creditors — the European Union, the IMF and the ECB — to discuss the debt dispute.


Ruth Berschens is Handelsblatt’s bureau chief in Brussels, Jan Hildebrand is deputy Berlin bureau chief. To contact them:,

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