Germany’s deputy finance minister has reaffirmed the country’s hard line stance on refusing a debt haircut for Greece, raising the spectre of a further bailout for the embattled country.
Jens Spahn said creditors would not countenance any reduction in the amount Greece owes or the timetable of repayments, in an interview with German radio.
He said Greece’s problem “is not a matter of how much debt there is at the moment”, referring instead to structural reforms aimed at improving Greek growth.
“Growth needs reliability,” Spahn said, indicating the country will have to pay its debts, while dismissing the possibility of Greece leaving the EU.
The chances of a Greek recovery have been dented in recent weeks after a row between creditors threatened to derail the release of further bail-out money to Greece.
Without the money Greece will be forced to default on a €7bn (£5.9bn) debt repayment in July.
Greece’s debt pile stands at 170 per cent of the economy’s annual output. Many economists believe the country will never be able to reduce the amount it owes without some creditors accepting losses on loans or a further bail-out.
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Greece’s debt burden was described in leaked documents as “explosive” by the International Monetary Fund (IMF), with divisions within the fund’s senior management as to whether it would support the austerity measures demanded by the other creditors.
European finance ministers and the IMF agreed last week to return to Athens to continue the programme, but there is still no deal on the fiscal targets Greece must hit.
Greece agreed to run an annual surplus of 3.5 per cent of GDP to qualify for further bail-out cash. However, the IMF believes that to be unsustainable, advocating instead a 1.5 per cent surplus.
The Greek economy shrank by 0.4 per cent in the fourth quarter of 2016, despite running a surplus. Output remains 25 per cent below pre-crisis levels.
Officials from creditor nations insist Greece is on a path to recovery. However, continued social unrest has accompanied high unemployment, at 23 per cent, and youth unemployment, at 45.7 per cent.