From Stratfor
Eurozone finance ministers gathered Dec. 4 for a Eurogroup format meeting to reach consensus on several Greek debt relief measures planned since May. They agreed on a number of short-term measures that include locking the interest rates on current and future loans and extending the repayment period. By 2060, these could reduce Greece’s debt to GDP ratio by about 20 points.
The Eurogroup, however, did not manage to strike an agreement with Greece on how to implement the reforms necessary to reach fiscal targets. Such changes would include controversial labor reform and other austerity measures. Greek Finance Minister Euclid Tsakalotos said the Greek government has had to demur because of domestic political considerations and that austerity measures are making the administration increasingly unpopular.
The International Monetary Fund has yet to decide whether it will take part in the Greek bailout and has made its participation conditional on debt relief measures for Greece. It will make its final decision after the second review of the bailout is concluded, which will likely take place in early 2017.
Meanwhile Greece is still required to stick to its financial targets, including a surplus of 3.5 percent of GDP by 2018. The International Monetary Fund considers this target unrealistic without further reforms in Greece, and says Greece’s budget surplus target should not exceed 1.5 percent of GDP, or more austerity measures should be adopted.
These short-term debt relief measures are unlikely to be sufficient for the International Monetary Fund. But deeper debt relief is a controversial issue for EU countries such as Germany and the Netherlands, which will hold elections in 2017. Further debt relief is going to be discussed only starting in 2018 at the end of the current bailout program.
However, Germany and the Netherlands also want the International Monetary Fund to participate in the bailout, in order to increase pressure for reforms in the country. German Finance Minister Wolfgang Schaeuble said Dec. 4 that Greece needs to implement reforms to remain in the eurozone, and that debt relief would not help the country.
