Tuesday, June 20, 2017

The Eurogroup on Greece: Debt Relief with a Fiscal Straitjacket

by Jeromin Zettelmeyer

Peterson Institute for International Economics

June 20, 2017

Greece’s latest deal with the Eurogroup—the group of eurozone finance ministers—is bigger news than you might think from the press reactions so far. As expected, Greece got its next disbursement of funds to avoid default, the International Monetary Fund (IMF) gave a symbolic stamp of approval, no actual debt relief will transpire until the end of Greece’s EU-supported reform program, and the IMF will not be prepared to disburse until that happens (if at all). This feels like business as usual. But there is more to the story.

The June 15 statement of the Eurogroup contains at least three new and significant points. For the first time, it delivers an unequivocal commitment to debt relief. Second, it confirms that the Eurogroup (read: Germany) will accept interest deferrals as part of the package, a point that had recently been in doubt. Third, it lays out specific fiscal assumptions—not just for the next 2 or 5 years, but all the way to 2060. The first two are good news. On the third, the news is not so good, for reasons explained below. As a result, there is a high risk that the debt relief package that we will see next year—probably without endorsement by the IMF—will yet again kick the can down the road.


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