European bailout monitors have suspended planned debt-relief measures for Greece in response to a surprise move by Athens to spend an extra €600 million on poorer pensioners in breach of its international commitments.
European finance ministers this month agreed to short-term debt-relief measures that would cut Greece’s debt-to-GDP ratio by up to 20 percentage points.
But Athens's announcement last week that it would allocate €600 million to more than 1 million low-income retirees and halt a planned VAT increase "appear to not be in line" with Greece's commitments under its €86 billion bailout programme, a spokesman for Jerome Dijsselbloem, euro group president, said on Wednesday.
Under the terms of its bailout, Greece is obliged to notify euro area authorities of such changes to its spending plans, something it failed to do in this case.
Greek 10-year government bond yields surged 30 basis points to 7 per cent after the suspension, their highest level in three weeks, while Athens’s benchmark stock index fell 3.5 per cent.
Frustration
The suspension underlines the frustration among Greece’s EU partners over the shock spending announcement last week by prime minister
Alexis Tsipras
, which came just before
European Commission
and
International Monetary Fund
negotiating teams returned to Athens for more talks on policy reforms.
It also comes at a time when euro zone nations are already at loggerheads with the IMF over its participation in the Greek bailout programme.
Mr Dijsselbloem’s spokesman said the decision to suspend debt relief would be revisited next month.
This month’s Greek debt-relief deal was heralded by euro zone finance ministers as a sign of the smooth rollout of the bailout programme. So there was surprise on Thursday when Mr Tsipras said that more than €600 million would be spent to replace a Christmas bonus for 1.6 million pensioners that was scrapped by its bailout monitors, to be funded from a higher-than-expected primary budget surplus.
He also froze a planned VAT increase for a group of Aegean Islands to reflect the fact they had to bear the brunt of the refugee crisis. – Copyright The Financial Times Limited 2016
