Peter Spiegel in Brussels
The head of the euro zone's €500 billion bailout fund has played down expectations that Greece will be granted large-scale debt relief, saying it is not necessary to revive the country's economy and is unlikely to be accepted by European creditors.
Klaus Regling, managing director of the European Stability Mechanism, said Greece was already benefiting from generous loan terms that were the most concessionary "in world history".
Following the re-election last month of prime minister Alexis Tsipras, he added, the parties appear to be narrowing their differences as they prepare to resume negotiations over possible debt relief later this year.
“I think now there’s a big convergence,” Mr Regling said in an interview. “The Greek government realises there will be no nominal [debt] haircut – and for good reasons. The Greek government should sell what has happened already – and what might have been – very positively to their electorate, to the Greek population, because the benefits are there in any case.”
As part of the July deal, euro zone creditors agreed to reopen debt talks as part of the programme’s first quarterly review, expected to begin next month.
Mr Regling, whose ESM will hold more than 60 per cent of Greek debt at the end of the new €86 billion rescue programme, could play a central role in those negotiations.
Both the International Monetary Fund – a key proponent of debt relief for Greece – and Athens have accepted there will not be "haircuts", or full writedowns, of the country's existing bailout loans. But the IMF, in particular, has pushed for decades-long extensions of repayment schedules with long "grace periods" where Athens would be free of even interest payments.
In July, the IMF warned that Greece needed “debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM”. The demand prompted questions about whether the IMF will ultimately commit to a third rescue programme, something considered essential for Berlin to win approval for bailout payments in the Bundestag.
“It seems to me a little on the long side,” Mr Regling said, referring to an IMF analysis suggesting Greece needs maturity extensions with grace periods of 30 years. “One can look at that, but it seems to be unnecessary to be that long-term and many variables change all the time – including the assumptions about growth, which of course is a function of how quickly reform programmes are implemented. Some of this is probably already outdated again.”
Despite the differences, Mr Regling believed the IMF had gradually moved towards his view of the importance of Greece’s low annual debt payments. Meanwhile, he interpreted recent comments from Mr Tsipras as indicating he was not in the mood for a replay of the brinkmanship that preceded the bailout, in which Greece nearly crashed out of the euro zone.
“Mr Tsipras is still Mr Tsipras, but in February when he started his first government, he had no mandate to implement these kinds of reforms. He had the opposite mandate. That’s why these problems came up,” he added. “Now he has a clear mandate to implement the agreed reforms.”
Mr Regling blamed much of the disagreement on Yanis Varoufakis, Mr Tsipras' first finance minister, who made debt restructuring his central demand when he was in government.
"He had so many strange ideas, I don't think I want to comment on any details," Mr Regling said. "Mr Tsipras is clearly very different from Mr Varoufakis because he signed the agreement at the summit in July . . . went to the election campaign promising to implement this programme. That's completely different from the rhetoric before." – Copyright The Financial Times Limited2015
