Germany Appears to Cave on Greek Debt

What a difference a meeting makes.

Hours after Europe and Greece appeared far apart on the latest bailout payment to Athens, German Finance Minister Wolfgang Schäuble late Monday signaled a readiness to make some kind of deal on Greek debt. His acquiescence came after a meeting of European finance ministers in Brussels.

It remains to be seen what Schäuble’s admission means, and details are short ahead of a May 24 deadline to deliver Greek Prime Minister Alexis Tsipras the money he needs to make a $4 billion debt payment in July. Germany has ruled out a haircut for Greece, which would have allowed Athens to pay back less than what it owes its European creditors. However, Berlin is apparently willing to explore some nontraditional options that would give Greece leeway.

This includes extending maturities on loans to Greece, limiting annual repayments, and capping interest rates on money lent to Athens. According to a report by the Wall Street Journal, under a European Union proposal, Greece won’t have to pay back what it owes for more than 37 years. Interest on this money would be capped at 2 percent until 2050. The latest bailout totals 86 billion euros, or $98 billion.

“Today was about opening the debate, exploring options, and giving political guidance to the technical people,” said Dutch Finance Minister Jeroen Dijsselbloem, chair of the Eurogroup of finance ministers, after the Brussels meeting ended.

This essentially pushes the crisis off the shoulders of Tsipras, German Chancellor Angela Merkel, French President François Hollande, and other European leaders — and onto their grandchildren. It allows Europe to give Greece sharp debt relief without actually having to cut the amount of money Athens owes. It would also extend a crisis that began in 2010 into the 2050s.

It’s not clear whether this will be enough to pacify the International Monetary Fund. Its chief, Christine Lagarde, has repeatedly said that the emergency lending bank would not participate in the continuing bailout without forgiveness of Greek debt.

It’s also yet to be determined if Greece can institute the spending cuts and tax and pension reforms it promised in exchange for the latest bailout. Tsipras pushed through some of the reforms on Sunday amid violent protests on Athens’s streets. But Greece will not reach the agreed-to surplus of 3.5 percent of GDP within two years. The IMF and the EU both want Tsipras to find an additional $4.6 billion in cuts, something the prime minister says is impossible.

In other words, Schäuble’s concession is another stopgap in the debt crisis that began in 2010. But it was enough to boost confidence in Greece’s future.

On Tuesday, as Greek lawmakers began consideration on another round of austerity, the Greek stock market almost erased losses on the year. Yields on Greek bonds dropped to their lowest 2016 levels, at 7.47 percent.

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