#Greece: Eurogroup agrees on short-term debt-relief measures

The Eurogroup finally agreed to short-term debt-relief measures for Greece. The measures outlined by European Stability Mechanism (ESM) Managing Director Klaus Regling should lead to a cumulative reduction of the Greek debt to GDP ratio of 20 percentage points of GDP by 2060, which Regling recognizes is an unusually long period, writes Catherine Feore.

There are three sets of short-term measures: EFSF (European Financial Stability Facility) loans which on average have a maturity of 28 years will be extended to 32 years; measures to reduce interest rate risk (fixed rate bonds to recapitalize Greek banks, SWAP arrangements and matched funding involving issuing long-term funds); and the waiving of step-up interest rate on some of the EFSF second programme by 200 base points for 2017. Other than the last measure, there will be no costs for ESM states.

The Eurogroup called upon the institutions and Greece to swiftly resume negotiations in order to finalize a staff-level agreement (the agreement) as soon as possible. Once the second review and the agreement are finalized the International Monetary Fund (IMF) will recommend that the Fund's Executive Board issue a new financing arrangement for Greece. It was hoped that this would be agreed before the end of the year, but it will now not happen until early 2017.

The Eurogroup welcomed the agreement with the European institutions on a budget for 2017, which confirms the agreed primary balance target of 1.75% of GDP and which allows for the national roll-out of the Guaranteed Minimum Income (GMI), which establishes a genuine social safety net.

In addition, the agreement once finalized will include measures to reach the agreed fiscal target for 2018 (a primary balance of 3.5% of GDP). When asked about how long the primary surplus of 3.5% should last, Dijsselbloem joked that there had been around 19 opinions around the table ranging from three years to ten years, saying that the issue will be returned to in 2018.

Further reforms are still expected including further substantial reforms of the labour market, the opening up of closed professions and the removal of barriers for investment. On labour reforms they agreed that experts would agree on best European practice on collective wage bargaining.

Commissioner Pierre Moscovici said the short-term debt would have a significant impact on Greece’s sustainability.

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