Reforms Review

Easing the Pressure on Greece

epa05154461 Greek Finance Minister Euclid Tsakalotos (L), German Finance Minister Wolfgang Schaeuble (C) and European Commissioner for Economic and Financial Affairs Pierre Moscovici (R), during a Eurogroup Finance ministers meeting at the European Council headquarters in Brussels, Belgium, 11 February 2016. The Eurogroup meeting's agenda is reported to be topped by the Portuguese draft budget, the Greek programme and general economic issues in the eurozone. EPA/LAURENT DUBRULE [ Rechtehinweis: usage Germany only, Verwendung nur in Deutschland ]
Greek Finance Minister Euclid Tsakalotos (l) may soon be able to breathe a sigh of relief. German Finance Minister Wolfgang Schaeuble (c) and European Commissioner for Economic and Financial Affairs Pierre Moscovici (r) seem willing to relax their stranglehold on Greece.
  • Why it matters

    Why it matters

    If Greece passes this review there’s €1 billion waiting in the wings as well as the possibility of debt reduction for the beleaguered Mediterranean nation.

  • Facts

    Facts

    • Greece needs to pay its creditors €13.6 billion in 2016.
    • Running on an anti-austerity platform, Mr. Tsipras came to power in 2015 on a pledge to expel foreign financial lenders, the European Commission, IMF and European Central Bank.
    • Greece hopes for growth of up to 1.5 percent this year.
  • Audio

    Audio

  • Pdf

After months of delays, momentum is finally gaining for a first review of Greece’s third bailout program.

The inspectors from Greece’s lenders – the International Monetary Fund, the European Union, the European Central Bank – as well as the the European Stability Mechanism, are expected to return to Athens this week to begin talks with the Greek government. That’s according to information from the lenders. Up until now, there has only been contact at the technical level.

The euro-zone finance ministers, known as the Eurogroup, will discuss the Greek reform program progress when they meet in Brussels on Monday. Then it’s expected that there will be an official announcement of the return of the inspectors to Greece. What was once dubbed the troika is now the quadriga, with the addition of the ESM, the rescue fund that disperses bailout money to struggling E.U. member states.

This first official evaluation of the program adopted last summer is critical, and not just because a further payout of €1 billion is at stake. After the report is presented, the International Monetary Fund will decide whether it will continue to participate in the Greek recovery program. Its own program for Greece runs out this month. The euro-zone countries also want to discuss debt relief with Athens.

The first evaluation was supposed to have taken place this past fall but has been delayed repeatedly. The German government was critical of the pace that Athens was implementing the agreed-upon reforms and there were also internal disputes among the lenders. The IMF wanted to see tougher cuts than the Europeans. For example, the IMF demanded cuts of 4 to 5 percent of gross domestic product in pension reform savings, whereas the European Commission, the ECB and the ESM felt that for the time being pension cuts were unnecessary.

This internal conflict is going to be put aside now, according to insiders. The IMF accepts that during this first evaluation the focus should be on the financial goals for this year and the coming year. That will allow a little flexibility on the reforms.

Recently the German government has come across as more empathetic toward Greece.

Apparently the Europeans, including German Finance Minister Wolfgang Schäuble, pleaded for this softer approach directly with IMF head Christine Lagarde during the G20 meeting of finance ministers in Shanghai in February.

Recently the German government has come across as more empathetic toward Greece, with Berlin emphasizing that the government of Greek Prime Minister Alexis Tsipras was working to implement the promised reforms. The fact that the inspectors are now ready to head to Greece is being described as a success in Berlin.

The new, more flexible approach comes as Europe also needs Greece’s to deal with a massive influx of refugees into the continent.

Yet it’s being vehemently denied by those working in Berlin’s chancellery and the finance ministry that there’s any link between the reform program and the refugee crisis.  Greece is currently bearing the brunt of that crisis, as the Balkans route that refugees used to travel north has been blocked.

Among the creditor states, it is however possible to see an indirect link. Berlin is thought to want to prevent the Tsipras government from collapsing over pension reform. Given the ongoing chaos of the refugee situation, elections are the last thing the Europeans want to see in Greece.

IMF officials had warned that the refugee crisis could incentivize the euro countries to make concessions on the reform requirements. Yet, gradually, the IMF has also conceded that the refugee crisis must be taken into account, without detailing exactly what that means. This new message from Washington is also likely to stem from the talks in Shanghai with Ms. Lagarde.

Greece's Debt Obligations-01

Of course, the latent divisions among the quadriga group could resurface at a later date. The euro-zone countries have pledged to discuss debt relief after the first program review. The IMF has clearly stated that the more concessions are made on the reform requirements, the more the Europeans will need to reduce Greece’s debt burden.

Apparently Berlin is now prepared for this. Officially, any further debt reduction is still being rejected. However, sources in government circles stress that an extension of the repayment period for existing loans and a lowering of interest rates could be possible.

 

Ruth Berschens is Handelsblatt’s Brussels bureau chief; Jan Hildebrand is the deputy Berlin bureau chief. To contact the authors: berschens@handelsblatt.com, hildebrand@handelsblatt.com

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