The Greek government is hoping to secure one its most important campaign pledges this Thursday – a deal to make its huge debt pile more sustainable – after years of austerity and bailout programs.
Euro zone finance ministers are gathering in Luxembourg Thursday to prepare the end of the third financial rescue deal to Greece, which is due to expire on August 20. This means they will aim to get an agreement on measures to make Greek debt easier to repay in the long-run.
Greece is the most indebted country in the euro area, with a public debt ratio of about 180 percent of debt-to-GDP (gross domestic product). Ahead of the start of the current program, in 2015, Greek Prime Minister Alexis Tsipras pledged to get debt relief from its euro zone partners. The euro area refused to give any haircut to the Greek debt pile but has vowed that it would smooth future debt repayments.
As a result, in 2016, there was an agreement to grant some short-term measures that would alleviate its debt burden. These included an extension of maturities related to loan repayments from the second bailout program. There was also a decision that Greece would not have to pay any capital or interest related to that second bailout until 2023.
The talks on Thursday in Luxembourg will focus on medium-to-long-term measures. These are likely to be linked with the future performance of the Greek economy. For instance, if Greece grows at a faster-than-expected rate, then it will be granted less debt relief on that year and vice-versa.
Thursday is a crucial day for the Greek government, which is looking forward to showing the Greek people that the last financial program was a success. But Thursday is also an important day for market players who are seeking clarity over the Greek debt profile in order to decide whether or not to invest in the country.
However, investors will also need reassurances and to see concrete actions from the Greek government after August that it remains committed to reform the economy.
European officials are expecting a long meeting that could go late into the night. The 19 euro zone finance ministers will also have to decide how much money to hand to Greece as a final tranche and how often they will have to go to Athens to check if the country is not deviating from the legislated reforms.