Linking Greece's debt repayments to European creditors with GDP growth resurfaces

Thursday, 09 November 2017 10:50

By N. Bellos

A French plan, initially hatched during the previous Hollande administration, to link the rate of repayment of Greece's debts to European creditors with annual GDP growth in the country appears ready for implementation.

The proposal, in fact, was included in a set of medium-term debt relief measures unveiled last June.

On Monday, moreover, outgoing Eurogroup chief Jeroen Djisselbloem said the "French mechanism" is a key part of measures to ensure Greece's debt sustainability.

On its part, Berlin was cool to the prospect of linking debt repayment with growth, when French Finance Minister Bruno Le Maire first described the measure, although the German side later relented and allowed the prospect to be included in a batch of "possible" medium-term debt relief measures.

Djisselbloem's statement essentially points to "second thoughts" by the German side and acceptance of the French mechanism.

Based on statements by French officials last June, the mechanism will be activated when the growth rate fails to reach forecast levels, i.e. in case of a negative development for instance. An extension of the repayment period for bailout loans received by Greece is one of the options in this case.

Conversely, the mechanism will also be activated in the opposite direction, namely, when growth rates are greater than forecast. In this case, the rate of debt repayment will increase.

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