(adds more details from ESM paper)
By Tom Körkemeier and Francesco Guarascio
BRUSSELS Nov 30 Euro zone finance ministers
will discuss next week proposals by the bloc's bailout fund to
cut Greece's debt, but with effects that would only kick in in
several years' time, putting the International Monetary Fund's
support for the measures in doubt.
The European Stability Mechanism paper, seen by Reuters,
proposes three sets of complementary measures to cut Greece's
debt burden, the heaviest in the euro zone compared with the
size of its economy, as part of an 86 billion euro ($91 billion)
Under the plan, the average maturity of some EU loans to
Greece could be extended by about 4 years and the floating
interest rates on some loans to Greece could be changed to
fixed-rate loans to make them safer.
These measures would reduce Greece's debt by up to 21.8
percentage points compared with its gross domestic product (GDP)
But the plan would start to significantly reduce Greece's
debt-to-GDP ratio only in 2030, when the debt would drop by 2.5
percentage points if all proposed measures were applied, the
paper showed in a table with projections for only some of the
years from 2016 to 2060.
The measures, particularly the interest rate swap, would
increase the Greek debt-to-GDP ratio from 2018 to 2022.
The ESM estimated that, under a baseline scenario of
economic forecasts, swapping floating rate debt to fixed-rate
would actually push up the debt-to-GDP ratio by 0.4 percentage
points in 2022.
The proposed measures would leave the debt unchanged this
year and would reduce it by 0.1 percent point in 2017.
"The aggregate impact of these measures will depend on the
size and timing of market transactions, and the combination of
schemes," the ESM warned in the paper.
The plan concerns only so-called short-term measures that
would be applied before 2018, when the current bailout programme
for Greece will expire.
It does not include any medium or long-term measures. The
International Monetary Fund has said it wants more clarity on
debt relief measures for Greece over the longer term, before
deciding on weather to join the bailout programme.
The participation of the IMF is considered crucial by
Germany, the largest economy in the euro zone. Berlin believes
that with the IMF on board the bailout programme would be more
credible and reduce risks for German taxpayers.
In a regular meeting on Dec. 5 in Brussels, euro zone
finance ministers will assess the ESM proposals and Greece's
progress in reforms required within the bailout programme, with
labour reform being the most contentious issue.
The IMF will consider joining the bailout programme only
after EU and Greek negotiators have agreed on the reforms needed
to make Greece's economy sustainable.
The managing director of the IMF, Christine Lagarde, will
not participate in next week's meeting, a euro zone official
said, noting that medium-term measures will not be on the table.
Greek and EU officials said this week that a second meeting
of euro zone finance ministers is likely later in December to
finalise a possible deal with the IMF.
EU lenders, the IMF and Greece are also at odds with
Greece's fiscal targets after the end of the programme. Germany
and other EU creditors want Greece to have a 3.5 percent primary
budget surplus - excluding debt-servicing costs - in 2018 and in
The IMF considers these requests as unrealistic, unless
Greece applied new wide-ranging austerity measures.
($1 = 0.9450 euros)
(Reporting by Tom Koerkemeier and Francesco Guarascio; Editing
by Alastair Macdonald and Hugh Lawson)