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Creditors make it clear: No debt relief for Greece before 2018

Creditors have cooled down Greece that has been awaiting for debt relief measures. “Greece has done its bit, now it wants debt relief,” Prime Minister Alexis Tsipras said on Thursday, two days after the agreement with creditors on additional measures 3.6 billion euros for 2019 and 2020. However, the country’s European lenders do not share Tsipras’ point of view. They hail the agreement but expect from Greece to deliver first before they consider some relief.

The Euro Working Group (EWG) met on Thursday to evaluate the developments towards the second review of the Greek program and ahead of the Eurogroup on May 22..

Tthe Eurogroup could endorse the policy package and the terms of the next disbursement and address the sustainability of Greek debt in the near future, on the basis of May 2016 agreement, an EU official told media.

In the statement the EWG said:

“The EWG assessed the second evaluation of the Greek ESM program. The EWG welcomes the preliminary agreement between the Greek Authorities and the Institutions in a policy package that will form the basis for completing the second evaluation. Once the prerequisites have been implemented by Greece, the Eurogroup will be able to approve the policy package and the conditions for the next disbursement, and to resolve the viability of the Greek debt in the immediate future on the basis of the May 2016 agreement.”

The Eurogroup agreement from May 2016 says that Greek gross financing needs should be below 15 percent of GDP after 2018 for the medium term, and below 20 percent of GDP later.

If Greece fully implements reforms agreed with lenders under its third bailout, euro zone governments, which hold almost two-thirds of Greek debt, agreed last year to buy back more costly loans Greece took from the International Monetary Fund.

On Thursday, German economic newspaper Handelsblatt reported that the European Stability Mechanism could purchase up to €13 billion of Greece’s IMF loans outstanding in 2019 and beyond, using untapped funds from the country’s bailout program. The ESM would offer lower interest rates and a longer maturity, providing Athens with significant relief.

“The German government is not opposed to the idea in principle,” Handelsblatt noted citing sources. Berlin views the proposal as one option among many, but a decision will not be made until after the current bailout program expires in the middle of the coming year.

Berlin was quick to dismiss the Handelsblatt report. In an e-mail to Reuters, the German finance ministry said “”No debt relief is being prepared” for Greece. The implementation of reforms that Greece agreed to in return for aid would help ensure the sustainability of the country’s debt.

“With regard to possible debt measures, we reached a clear agreement in the Eurogroup statement of May 2016. According to that, after the full implementation of the adjustment program, there will be an assessment of whether debt measures are necessary. That still applies,” the ministry added.

According to the Eurogroup statement of May 2016, Greece and European creditors also agreed to transfer the profits made from a portfolio of Greek bonds bought by euro zone national central banks back to Athens and, if necessary, extend the weighted average maturities and grace periods to keep the gross financing cost below 15 percent of GDP.

Eurogroup statement May 25 2016

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