Euro zone finance ministers will start discussions on Friday on Greece’s exit from eight years of international bailouts, focusing on how Athens wants to boost economic growth and finish the last reforms agreed with its creditors, officials said.
A Greek national flag flutters on the roof of a building in Athens, Greece February 8, 2018. (Photo: Reuters)
Greece is to return to market financing on Aug. 20 after more than eight years of living on cheap euro zone loans it got in return for painful reforms, after investors refused to lend to it in 2010 because of its ballooning deficit and debt.
Once the bailout ends, Greece will be free to set its own economic policy - a political turning point for the country that has long been forced to implement highly unpopular reforms suggested by the euro zone and the International Monetary Fund.
Before it gets there, it needs to implement the final 88 changes to its economy - the last batch of reforms agreed with euro zone creditors. Some of them, like the liberalization of the energy market, or privatization, are difficult.
Yet without those “prior actions,” Greece will not get a large cash send-off from the euro zone in August to keep it liquid in case of difficulties, nor can it hope for debt relief from euro zone governments, now Athens’ biggest creditor.
Finance ministers from the 19 countries sharing the euro will discuss on Friday the progress of Athens in implementing the reforms and the link between further debt relief for Greece and economic growth in the country and sound fiscal policies.
While, under pressure from creditors, Greece has turned its 15 percent of GDP budget deficit in 2009 into a budget surplus of 0.8 percent last year, many officials are worried that as time passes, Greek politicians will be under pressure to loosen budget strings again after the bailouts end.
They therefore seek ways to make it worth Greece’s while to be fiscally prudent as long as possible.
Some float the idea of a precautionary credit line from the euro zone bailout fund, ESM, which would entail conditions on Athens. But that is exactly why the left-wing government of Alexis Tsipars does not want it.
Euro zone officials therefore seek to link some of what they consider sound policy goals - like a primary surplus of 3.5 percent of gross domestic product until 2022 - to the debt relief deal.
The euro zone offer is likely to include some debt relief up front and some spread over time.
Since Greece will not have used all the money earmarked for it in the latest bailout, possibly up to 27 billion euros, that could be used by the euro zone to replace much more expensive IMF loans to Greece with its own, cheaper credit.
While there is no discussion of a reduction of the nominal value of the Greek debt, Greece might also receive back the profits made by euro zone national central banks on their portfolios of Greek bonds and see maturities and grace periods on euro zone loans extended.