Greece was supposed to receive a long-delayed €31.5bn tranche of rescue fund money this week, but the disbursement has been delayed. Eurozone leaders agreed to give Greece another two years to meet a key fiscal target: it will have to achieve a primary budget surplus (a surplus before interest payments) of 4.5% of GDP in 2016 rather than 2014. But they couldn’t agree how to finance this extension.
The IMF and the eurozone also rattled markets by clashing publicly over the date by when Greece’s overall debt pile is supposed to have fallen back to 120% of GDP. Eurozone governments favour a two-year extension of the existing target to 2022. The IMF says stick to 2020.
What the commentators said
Markets have learned to approach European policymakers’ meetings with low expectations, said FXPro.com. But “this week’s offering managed to fall short even of these”. The argument seems as absurd as “counting the number of Greek gods dancing on a pinhead”, as the FT put it, but look more closely and the disagreement is actually central to Greece’s debt drama.
There is no way, said Ian King in The Times, that Greece can cut its debt to 120% of GDP by 2020 or 2022. When one EU bigwig insisted publicly that it was feasible, he was greeted with laughter and had to insist he wasn’t joking.
But given the collapsing economy – 7.2% smaller than this time last year – and slow progress on cost cutting and reforms, official forecasts expect a peak of 192% in 2014. In 2010 the peak was forecast to be 150% in 2013.
So the IMF thinks that the target can stay because some of Greece’s debts will soon have to be written off, lightening the overall load. Private creditors took a haircut in the last debt restructuring, so now it’s official creditors’ turn.
After bunging Greece cash for two years, they own most of the debt. But for EU politicians “such talk is highly dangerous”, said Nils Pratley in The Guardian. “They have elections to win” and have promised taxpayers they won’t lose money on past bail-outs.
But with Greece miles off course, a strategy of ‘extend and pretend’ risks an even larger eventual write-off. It’s also politically unsustainable, added Thomas Pascoe on Telegraph.co.uk. If things go on like this, Greece will “go under”. And if its default “is not eventually enacted by parliament, it will be enacted on the streets with bloody consequences”.