Greek debt relief was not on table during bailout negotiations, says EU official

Debt relief was not on the table during negotiations to extend Greece’s existing bailout programme and agree a package of reforms needed to unlock its remaining funds, according to a senior EU official.

The official told the Guardian that debt relief was “politically highly toxic for many eurozone member states”.

 Any form of debt restructuring would only be possible as part of a new programme – which would be Greece’s third – and only after the country provided assurances that it would really implement reformsand demonstrate that no further relief would be needed in future.

 However, even then, writing off some of the debt would be a “no-go”, the official said. A more realistic option would be applying “very long maturities with 0 [%]-interest” on the existing debt.

 The revelation is at odds with the position of the International Monetary Fund, which said earlier this week that Greece needed an extra €60bn of funds and debt relief to provide its economy with “breathing space” to stabilise.

 According to the IMF’s analysis, Athens’ debts are unsustainable and require large-scale relief: a 20-year grace period, or a haircut that yields a reduction in debt of more than 30% of GDP.

 However, the EU official believes that the debate over debt relief is irrelevant because creditors needed assurances that Greece did not want to provide.

 When asked why he thought Greece had called a referendum on whether to accept the creditors’ proposals, the official says that he believes that the vote is an escalation of a negotiating strategy gone wrong.

 First, the prime minister, Alexis Tsipras, would have been unable to get a credible agreement through parliament.

 Second, the finance minister, Yanis Varoufakis, had been calculating with 100% confidence that the EU would not allow an exit from the euro because of political and geopolitical considerations.

 Because of these two factors the Greek government pretended to negotiate while waiting for a political solution. But a deal was close even under these “fake negotiations”, so they chose to escalate the situation. Things happened too fast for game theorist [Varoufakis] to adapt, and not only is he destroying his economy, but has made a huge tactical mistake.

 The official is adamant that if the first bailout programme had been fully implemented, Greece would have been recovering in three to four years like Ireland or Portugal. Instead there were no structural reforms. This lead to “ad hoc savings” to meet fiscal targets, which are bad for growth.

theguardian.com