ESM’s Regling links Greek debt relief to further structural reforms

Klaus Regling, the managing director of the European Stability Mechanism, has once again stressed the need for Greece to faithfully follow its reform programme, and has expressed reservations over proposals for an automatic extension of maturities of Greek bonds, noting his preference for a direct linkage of specific reforms to specific, gradual debt relief measures.

Regling, addressing a CDU party audience in Berlin, emphasised the need for negotiations that will particularise this linkage with specific commitments on both sides – the Greek government and its creditors.

Regling in his remarks underlined the need for a credible framework of negotiations on the restructuring of debt with private sector creditors, in the event of a future debt crisis.

The central element of discussions regarding debt relief for Greece is whether the specific moves to reduce the debt burden will be automatic, and if they are linked to specific reforms, what those might be and how they will be coordinated with restructuring moves by creditors.

Reform clause

According to a report in the daily Ta Nea, creditors are veering towards limited debt relief measures that will take effect immediately, along with with implementation of further structural reforms that in turn will trigger more debt relief.

One of the key measures under consideration, that would give a desperately needed breather to the Greek economy, is the buying back, with ESM funding earmarked for but not yet disbursed to Greece, of nine billion euros of Greek debt to the IMF, which carries a high, 4.5 percent interest rate. The differential is tremendous, as the ESM lends to Greece with a one percent interest rate.

That nine billion euros to buy the debt from the IMF, which would be drawn from the 27.4 billion euros in ESM funding earmarked for the Greek programme, will have to have been disbursed by the time the current bailout programme is officially completed on 20 August, and there would be no strings, or conditionalities, attached.

On the other hand, an extension of bond maturities, or the return of profits from Greek bonds held by the ECB and eurozone central banks, will be linked to particular structural reform commitments from Greece.

“Greece can be the fifth success story, if it remains on the path of reforms,” Regling said.

in.gr