Greece is expected to propose that a third of its bailout program be scrapped at a meeting of eurozone finance ministers in Brussels on Wednesday in order to allow the country to raise public spending.
Kathimerini, Greece’s leading newspaper, reports that the new government of far-left prime minister Alexis Tsipras will ask for a “bridge loan” to stave off default when the country’s current aid program expires by the end of February.
To qualify for fresh financial assistance, Greece would replace the third of its bailout program it intends to cancel with ten new reforms.
Greece also wants to reduce its primary budget surplus — not counting interest payments on its debt — to 1.5 percent this year.
The country has brought down its deficit from a 16 percent high in 2009
To free up money for social spending, Greece would suggest increasing the number of short-term bonds it can issue, tapping into the last €7.2 billion tranche of its bailout or using an €11 billion leftover from its bank recapitalization fund.
The bridge loan would run until September and allow time for negotiations about a “new deal” for Greece’s debt.
Tsipras was elected last month on a promise to reduce Greece’s debt and reverse the economic reforms and spending cuts the country was forced to enact in order to qualify for €240 billion in financial support from other European Union countries and the International Monetary Fund.
Most of Greece’s privately-held debt was restructured in 2012. Some 90 percent of its debt is now owed to official creditors, mainly other eurozone governments.
Under existing agreements, Greece isn’t expected to start paying back until 2022. The costs of servicing its debt are fairly low at an estimated 2.6 percent of annual economic output.
Northern European leaders, including Finland’s Alexander Stubb and Germany’s Angela Merkel, have ruled out debt relief.
Germany also insists any “bridging” deal would need international supervision. Merkel told a news conference in Washington DC on Monday that the current bailout program has to be “the basis of any discussions that we have.” Her finance minister, Wolfgang Schäuble, separately told reporters in Istanbul, “Without a program, things will be tough for Greece. I wouldn’t know how financial markets will handle it without a program. But maybe he” — referring to Greece’s prime minister, Tsipras — “knows better.”
Tsipras showed no intention of sticking to Greece’s commitments in his first speech to parliament as prime minister on Sunday. “The bailout failed,” he said. “We want to make clear in every direction what we are not negotiating. We are not negotiating our national sovereignty.”
Immediately after he took office, Tsipras rolled back the privatization of Greece’s largest seaport and its public power utility. He also announced plans to rehire public workers, raise the minimum wage, reinstate pension bonuses and scrap a new property tax. Doing so would violate the terms of the country’s current bailout.