Euro zone lenders, IMF to discuss Greek debt relief on Friday

BARI, Italy (Reuters) - Top euro zone and International Monetary Fund officials will discuss debt relief for Greece early on Friday, on the sidelines of a meeting of G7 finance ministers and central bankers in the Italian city of Bari, officials said.

A man looks down as a Greek national flag flutters atop one of the bastions of the 17th century fortress of Palamidi under an overcast sky at the southern port city of Nafplio, Greece, February 19. 2017. REUTERS/Alkis Konstantinidis

The meeting is to help determine how euro zone lenders, who hold half of Greek public debt, should firm up their conditional promise of debt relief for Greece from last year to satisfy the International Monetary Fund.

The IMF has made debt relief for Greece a condition for its participation in the latest bailout for Athens, the third one since 2010. Several euro zone governments, led by Berlin, want the IMF to participate for credibility reasons even though they disagree with some of the IMF recommendations on Greece.

While Greece is not on the official agenda of the G7 financial leaders meeting, it will be discussed on the sidelines because all the main players needed for a deal will be present, officials said on Thursday.

German Finance Minister Wolfgang Schaeuble, the chairman of euro zone finance ministers Jeroen Dijsselbloem, Economic Affairs Commissioner Pierre Moscovici, French Finance Minister Michel Sapin and the heads of the IMF, the euro zone bailout fund and the European Central Bank will all take part.

“Of course Greece will be discussed, all the key players are here,” said one official. The official agenda of France’s Sapin showed the meeting is due to start at 0500 GMT.

Euro zone lenders promised in May 2016 that if Greece delivers on all reforms pledged under its bailout, they would extend the maturities and grace periods on loans so that Greek gross financing needs are below 15 percent of GDP after 2018 for the medium term, and below 20 percent of GDP later.

They also said they could consider replacing more costly IMF loans to Greece with cheaper euro zone credit and transfer the profits made from a portfolio of Greek bonds bought by euro zone national central banks back to Athens.

But all this could happen only if Greece delivers on its reforms by mid-2018 and only if a debt sustainability analysis shows Athens needs the debt relief to make its debt sustainable.

The IMF believes that debt relief, or at least a clear promise of it, is needed to restore investor confidence in Greece, especially if the country, which has public debt of 180 percent of GDP, is to return to market financing next year.

Germany and other northern European countries say that if Greece keeps a high primary surplus for long enough, it may not need any further debt relief, especially given that the existing very cheap euro zone loans are already saving the country’s government eight billion euros a year, or 4.5 percent of GDP.

The final decision on how to phrase the debt relief promise for Greece is to be taken at the next meeting of all euro zone finance ministers on May 22.

When implemented in full, the debt relief measures should lead to a cumulative reduction of Greece’s debt-to-GDP ratio of around 20 percentage points until 2060, according to estimates of the euro zone bailout fund.

They would also cut Greece’s gross financing needs by almost five percentage points over the same time horizon.

Additional reporting by Silvia Aloisi in Bari; Editing by Andrew Heavens