Greek debt restructuring unlikely before year-end

A solution for Greece's IMF loansGreek protesters in Athens

While the Greek government is currently negotiating the conditions of the third bailout with the international creditors, the IMF is pressing for a Greek debt restructuring. Analysts do not think this is likely to happen until financial markets digest the positive part of the third bailout deal, which is expected to be signed before August 20th.

‘Debt forgiveness is not possible, given that Germany is clearly against it,’ says Natalia Aguirre, director of Analysis and Strategy at Renta 4.  But she considers that what the IMF is asking for is ‘debt relief, understood as an additional extension of debt maturities and lower associated costs.’ For Selfbank analyst Felipe López, ‘it is possible that the Eurogroup will consider other alternatives to debt forgiveness to relieve the Greek debt situation. Periods free of interest payments and debt repayments, an extension of debt maturities or a reduction of the interest burden.’

Both experts agree, however, that debt relief is not likely to start being evaluated until the end of the year, once the first check on the Greek bailout is completed. ‘Only if the Greeks play their part will the creditors be willing to ease a debt which is clearly unsustainable in the medium term,” says Renta 4’s Natalia Aguirre.

Selfbank’s Felipe López highlights the Eurogroup’s loss of credibility and credit authority as the main consequence of any Greek debt forgiveness. “Other European countries currently holding debt with the Eurogroup could express disagreement with the measure and call for their debt to be forgiven as well. A forgiveness for Greece could also revive the risk of contagion if there was public support for radical political parties in other countries in the eurozone,’ says López, pointing to Spain as an example.

Greek debt forgiveness might mean a greater geopolitical and strategic cost for the future of the European Union than a Grexit situation. And we also need to add in the fact that Germany has a decisive voice within the Eurogroup. The country has already admitted to being a determined opponent of any kind of debt forgiveness,” concludes the Selfbank analyst.

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