France sides with Greece on debt relief
by Alberto Paez (June 13, 2017)
The Greek government has been implementing a demanding reform programme, having recently passed through the Parliament the remaining list of prior actions in order to fully comply with the bailout agreement and secure the release of the €7,6 billion trance by the creditors.
The Greek economy is steadily recovering and the major macroeconomic figures are being gradually addressed. Still, there are mounting burdens in lowering unemployment rates to pre-crisis levels, increasing market stability and boosting investments after six years of recession. A clear roadmap on debt restructure will certainly provide markets and investors with a positive signal and facilitate ECB's decision to include Greece into its quantitative easing program.
The visit of French Finance Minister Bruno Le Maire in Athens on Monday was a proof that Paris is working on a compromise between Greece, Germany and the IMF. The French side has submitted a proposal that essentially links debt repayments and Greece's debt sustainability level to an adjustment mechanism based on the annual growth rate of the economy. In simple words, the more the economy grows, the more sustainable the debt will become after steady annual repayments; adversely, if the economy cannot reach sustainable growth rates, annual repayments will be reduced to a certain, affordable rate as of GDP.
This proposal departs from and further elaborates the proposal that Euclid Tsakalotos initially made in late 2016, i.e to lower primary surpluses to 2.5% and use an additional 1% towards investments and growth-oriented policies. Le Maire's proposal has been also put in the table by Yanis Varoufakis a couple of years ago, but never went though neither during the first phase of negotiations in 2015, nor after the capitulation of Athens in mid-July.
Unlike his predecessor, Le Maire has strongly emphasized on the imminent need to reach an agreement on the Greek debt, seeing the issues not only from a national perspective, but also from Europe's lenses, thus seeking to secure financial stability in the monetary union.
The odds are against Greece as the German Finance Minister Wolfgang Schauble seems reluctant to debate on any idea other than the one he is meticulously putting forward: that of delaying any concrete development on Greece's debt before German elections in September. Should Schauble's stance remain unchanged, even in the context of a subtle compromise, Le Maire and Macron's European credibility would have received a major blow.
Alberto Paez is Policy Analysts at Bridging Europe
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