Greece’s creditors are to begin talks over whether it should be granted additional debt relief, after the European Commission confirmed that Athens had achieved a primary surplus for the first time since the euro zone crisis.
Although Athens has been relying heavily on hitting the surplus to trigger the new debt relief talks, euro zone officials have indicated such talks will not consider wholesale debt writedowns, as some in the International Monetary Fund were advocating last year.
Most Greek debt is held by government lenders, meaning any further “haircuts” would result in direct losses for euro zone governments.
Bailout loans
Instead, euro zone officials are expected to further extend maturities on their bailout loans and lower the interest charged.
Although this will not bring down Greece’s total debt levels, which in 2013 hit a record 175 per cent of gross domestic product, it will make it far easier to pay off.
Simon O’Connor, the European Commission’s economic spokesman, said Greece’s primary surplus – before interest payments and some other one-off payments – reached € 1.5 billion, or 0.8 per cent of GDP, a target that formally launches talks over additional debt relief. “We expect this conversation to begin later in the year,” said Mr O’Connor. “It may begin over the summer, it may continue into the autumn but I can’t be more precise than that at this stage.”
By traditional measures of a country’s primary budget, which normally excludes only debt interest payments, Greece was still about 8.7 per cent in deficit. But Mr O’Connor said Brussels had also granted Greece leeway for some one-off charges, particularly assistance to the country’s ailing banks, which pushed Athens into surplus.
Separately yesterday, investors flocked to Portugal’s first regular debt auction since applying for international help in 2011, pushing its borrowing costs to their lowest level in eight years.
The auction of the 10-year bond, which raised €750 million with a better than expected yield of 3.57 per cent, paves the way for Portugal to become the second euro zone country after the Republic to exit its three-year rescue programme.
Portugal’s government still has to decide whether it will exit its bailout next month with or without a precautionary credit line from the European Stability Mechanism – the euro zone’s new permanent rescue fund. But the successful auction increases Lisbon’s chances of making a clean getaway from the programme.
The auction success came as new figures showed Germany led an expansion in business activity in the euro zone to a near three-year high in April.
Output
Markit's flash euro zone purchasing managers composite index, considered a proxy for economic output, rose to 54 from 53.1 in March, beating economists' consensus forecasts. It points to a 0.5 per cent increase in gross domestic product in the euro zone in the second quarter, Markit said.
Germany’s PMI rose to 56.3 from 54.3, in a broad based improvement across both manufacturers and services. Periphery euro zone countries also increased, registering the fastest rate of growth since early-2011. Markit did not break out Irish figures.
France was less buoyant, however, as the composite index fell to 50.5 in April from 51.8 in March, though it still registered above the 50 level that distinguishes expansion from contraction. – (Copyright The Financial Times Limited 2014)
