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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Relief map for Greek debt: not without a fight or two

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Jeremy Gaunt -


Pretty much everyone agrees that Greece needs debt relief; what they don’t agree on is what debt relief means.


Easing Greece’s fiscal path forward is likely to be the next great struggle in the country’s agonising, seven-year, three-package bankruptcy saga now that a bailout pact has opened the door a crack to discussions on relief. Only this time it will not just pit Greece against its lenders, but lender against lender as well.


Start with the numbers: At the last count, the Greek government owed 314 billion euros despite writing off about 100 billion euros owed to private bondholders in 2012.


This is why debt relief is on the agenda — with Greece perhaps quixotically pushing for something as early as May 22, when the Eurogroup of euro zone finance ministers meets to sign off on Tuesday’s staff-level pact on support for Athens.


The battle will be fought on a number of fronts.


Firstly, there is the issue of whether the International Monetary Fund (IMF) will participate financially in the current, third bailout.


The IMF says Greece’s debt is unsustainable and it doesn’t want to keep throwing money at the problem while that is so.


The European Union lenders — the European Commission, European Central Bank and European Stability Mechanism — want the IMF involved, because it brings in an outside enforcer.


But the Europeans themselves have so far refused to say what they plan to do, preferring a general pledge to provide debt relief once certain reform criteria are achieved.


Then there is the question of what kind of debt relief to offer Greece.


There is no longer any talk of debt “forgiveness” — simply letting Greece off paying back its debt. The euro zone says there is no provision for that under its rules.


One more opportunity for a clash is over just how much of a primary budget surplus Athens has to run for its debt to be sustainable.


The IMF says Greece can hit 2.2 per cent in 2018 and aim at 3.5 per cent annually in 2019-2021. After that, though, it says it should only be 1.5 per cent.


Euro zone lenders, however, want Greece to sustain a 3.5 per cent primary surplus target over a slightly longer period to be able to pay the annual interest rates for its debt. After that, it is publicly undecided.


Few other European Union countries run surpluses of the size that Greece is being told to reach and sustain. But then, none of them have a debt mountain the size of the South African economy. — Reuters


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