EU documents: Germany says no to real debt relief measures

by on 14 June 2018

Commission, Eurogroup President, France, Italy and Spain  Germany, blocking good options for real debt relief. The pressure of the Eurogroup majority for an agreement on June 21 and the Merkel “triple” for the IMF. 

Despite what is publicly heard by various officials, the truth is that there is no solid agreement on debt yet and we are heading to the Eurogroup next week with Germany stopping any serious proposal to ease Greek debt.

As revealed in a confidential four-page progress document obtained  by, Berlin wants to prevail in all decisions, not to give substantial debt relief, to “tie” Greece in  tight surveillance and to use the  IMF  as a … ‘signature’ so that it cannot itself issue reports on the viability of Greek debt.

According to the documents, France, the Commission, Italy, Spain, as well as Eurogroup President Mario Senteno agree on a series of forward-looking and medium-term measures with extensions of over 7 years for EFSF loans as well as incentives per annum, by releasing profits from Greek bonds (SMPs and ANFAs), so that Athens remains committed to its commitments.

All are blocked by Germany and Angela Merkel, who allegedly said in a closed meeting in Canada on the sidelines of the G7 that her party base does not give room for maneuver and flexibility.

Excuses  or Truth? According  Macron and Juncker, Mrs. Merkel uses this excuse and will use this strategy not only to pass the hard line on Greece but also to secure her positions regarding the deepening of the eurozone and, of course, covering critical vacancies in the EU seats which will be opened in 2019.

What the documents say

As regards debt and disagreement, the documents state:

“Medium-term debt measures include:

1. Repurchase of IMF loans in whole or in part, using the funds remaining from this program, as funding through the program is less “expensive” for Greece.This factor will have the greatest impact on the debt sustainability report for something that will be considered as a manageable amount (debt). “

Continues the document:

«2. The re-establishment of the distribution in Greece of the Eurosystem’s profits from the Greek SMP / ANFAs programs. This amount can be paid in installments over the period 2018-2023. ” This idea is unanimous.

 The documents say that the majority of the eurozone members support the improvement of the EFSF debt repayment conditions, and even with “good” extensions, which Berlin disagrees.

“The reprofiling of EFSF loans with their extension after 2023 (the beginning of the first repayment obligations). The debate is the maturity period to be adopted. What has been agreed by the Eurogroup is from 0 to 15 years. Anything under the minimum of seven years will not be credible for the markets in our view. (Anything inferior to a minimum of seven years would not be credible to the markets from our point of view) ».

“Germany continues to push for about three years, while the IMF and other countries are pushing for 15 years. This thorn is particularly sensitive, “the documents said.

“Finally, the mechanism for adjusting growth-related repayments is supported by most players, including the IMF. This is needed to maintain the flexibility it needs to address new macroeconomic uncertainties in the future, and it also provides a credible repayment instrument. This instrument is strongly supported by the French and has received support from all outside Germany. “

The memo continues:

“Germany says this mechanism cannot work automatically and justifies it with the need for annual re-approval (so that national parliaments can cancel it).
But the lack of automation creates uncertainty: it will undermine the credibility of the mechanism itself and hence the credibility towards markets. “

A compromise is envisaged to meet Germany’s concerns, but it is not certain that this compromise will be accepted, “the memorandum says. Documents argue that any decision on debt to be accompanied by a form of conditionality is necessary.

“Member countries have asked for assurances to avoid the risk of moral hazard and to maintain the financial incentives for Greece to stay on after the program. Nonetheless, any commitments should avoid comparing with a “fourth” program and (commitments) should be limited, objective and detailed.For example, profits from SMP / ANFA can be considered as one of the commitments “.
Who is in favor and who is not…

“The President of Eurogroup, the institutions and the majority of the member countries (including France, Italy and Spain) are aligned on the main elements of the final agreement on the debt” says the document
“The differences remain, however, especially for the reprofiling and the development mechanism between:

1. Germany, on the one hand, which maintains an extreme line for debt relief and at the same time, despite the differences, insists on the full participation of the IMF. “

2. “The IMF, on the other hand, insists on large-scale debt alleviation measures. It should be noted here that the IMF has made significant compromises in recent weeks to bridge the differences with the European institutes and its debt and its sustainability analysis. This is interpreted as an indication that he wants to open his own program with Greece. “

“From the point of view of the overwhelming majority of the participants, the Eurogroup statements in May 2016 and June 2017 should be made. At this stage, an important issue is to ensure that there are unconditional and adequate frontloading debt relief measures to be implemented before the end of 2018. “

What an EU official says

A Eurogroup Finance Minister confirms what the confidential documents say and adds that “only Berlin really knows what to do with the decisions since Germany’s dominance is more than obvious.”

“Germany’s proposals and objections are unacceptable and I can justify them as  “cat and mouse” game with the IMF,” he says, adding that, in his view, the decision to participate in the IMF has not yet cleared up.

“We can all prepare for IMF participation only as a technical adviser in the context of increased supervision of article 4, but Lagarde and Merkel will take the final decision. Everything can change in a few hours. “

As for the increased expectations for the Eurogroup on 21 June, the official says nothing has yet been closed, but that a pre- agreement is drafted and many want closure then. But it is also difficult because Berlin wants all-in-one decision “.

“The idea is to have an agreement on everything and a ratification by the Heads of State of the Eurozone at the June 27 summit.”

Where is Berlin heading?

Diplomatic sources from Germany have told that Mrs Merkel’s party machine will not leave anything to be unclear. If the IMF does not back down to the automatic mechanism and the maturity extensions, then Germany will state the intention of the Eurozone alone to continue with the Fund’s contribution to surveillance, without however having the right to make its own reports. The IMF must therefore agree with the eurozone without the right to veto.

In other words, Germany promotes enhanced surveillance  and conditionality in debt relief, agrees with the incentives for Greece to remain in its annual targets, wants to re-approve the growth mechanism rather than automate, wants to give a big loan tranche to Greece to acquire part or the whole of the IMF loans alone and to treat it as a debt relief, while for EFSF loans it proposes a lengthening of only 3 years .

It remains to be seen where the compromise will be found….

Angelika Papamiliadou –