Bending on Bailouts

Schäuble Willing to Ease Up on Greece

Schauble by Getty images
Wolfgang Schäuble may ease up on Greece.
  • Why it matters

    Why it matters

    The International Monetary Fund insists that Greece needs debt relief and the European Union must come up with a compromise if it wants to keep the organization involved in the bailout program.

  • Facts

    Facts

    • Greece’s parliament will vote on a new package of tax hikes and reforms demanded by its international lenders on Sunday.
    • Two days later, euro zone finance ministers assess whether Athens qualifies for much-needed bailout loans.
    • The IMF believes that without debt relief, Greece will miss targets for GDP recovery in 2018.
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    Audio

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Germany has been at loggerheads with the IMF over whether Greece should be given any sort of relief on its debts, but documents seen by Handelsblatt show that its finance minister, Wolfgang Schäuble, may be softening his stance on the issue.

Mr.  Schäuble, a member of the center-right Christian Democrats, has always insisted Greece must stick to the debt payments as part of its bailout package, but in a recent, confidential letter to Germany’s parliamentary budget committee, he said he may consider some form of relief after 2018.

In the letter the finance ministry indicated its willingness to bring the debt burden to a workable level. “These measures are subject to the condition of a complete implementation of the program in 2018,” reads the document, which Handelsblatt has obtained.

In other words, Mr. Schäuble is willing to accept debt relief for Greece, but only after the current aid program ends. At the moment, the German parliament has to vote on any alterations to the terms of the bailout for Greece and the German government is not willing to stir up that particular hornets nest before the German general elections, which will be held in the fall of 2017.

Mr. Schäuble for his part, absolutely does not want to proceed without the IMF and is willing to ease his stance on debt relief to keep the IMF involved in the bailout

What Mr. Schäuble is proposing is not a modification of the current rescue program, which would require parliamentary approval. Instead, it is a change of the next tranche of payments, and this would only require that he ask the budget committee for its approval of the disbursement of the next tranche, worth billions.

The IMF is currently insisting that Greece needs debt relief to move forward. At the moment, the IMF and the E.U. cannot agree on when and if this relief should be granted. There is also disagreement over the scope of the debt relief. The euro zone countries strongly oppose the IMF demand that interest on the 40-year loans to Greece be capped at 1.5 percent.

 

Greece Heavy burden-01 debt level budget balance Greek finances

 

European Union diplomats said they were confident that the Eurogroup meeting of euro zone finance ministers on May 24 would produce a compromise. Mr. Schäuble for his part, absolutely does not want to proceed without the IMF and is willing to ease his stance on debt relief to keep the IMF involved in the bailout. The finance ministry states in its papers that the “participation of the IMF is crucial.” The document also notes that Europeans are willing to create the conditions needed to allow the IMF “to participate in the program.”

The first official review of the Greek reform program – required for disbursement of the next tranche of aid money – is almost finished. “In Athens, we are on the verge of completing the staff level agreements,” individuals involved in the negotiations said in Brussels, noting that Greece had delivered the required reform resolutions. There was also overwhelming agreement on the “backup” spending cuts approved for emergencies, as well as reforms. The IMF could live with the backup resolutions that have now been agreed upon, the individuals added.

 

Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy Berlin bureau chief. To contact the authors: berschens@handelsblatt.com and hildebrand@handelsblatt.com

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