May 4, 2017 / 8:44 PM / 5 months ago

Euro zone to mull Greek debt relief once reforms take place

BRUSSELS, May 4 (Reuters) - Euro zone governments will consider medium-term debt relief for Greece as promised in a statement in May 2016 once Athens implements the reforms it agreed to earlier this week, a euro zone official said on Thursday.

Euro zone deputy finance ministers and treasury officials in the Euro Working Group (EWG) met on Thursday in Brussels to discuss a deal struck by Greece and euro zone governments on tax and pension reforms on Tuesday morning, which paves the way for talks on more debt relief.

“The EWG welcomed the preliminary agreement reached between the institutions and the Greek authorities on a policy package,” said the euro zone official with direct knowledge of the talks.

The EWG prepares meetings of the Eurogroup, or euro zone finance ministers. The next Eurogroup is scheduled for May 22 and could decide, if negotiations go smoothly, on debt relief for Greece, which has a public debt of 180 percent of GDP.

“Following the implementation of the prior actions by Greece, the Eurogroup could endorse the policy package and the terms of the next disbursement and address the sustainability of Greek debt in the near future, on the basis of the May 2016 agreement,” the official said.

The Eurogroup agreement from May 2016 says that Greek gross financing needs should be below 15 percent of GDP after 2018 for the medium term, and below 20 percent of GDP later.

If Greece fully implements reforms agreed with lenders under its third bailout, euro zone governments, which hold almost two-thirds of Greek debt, agreed last year to buy back more costly loans Greece took from the International Monetary Fund.

They also agreed to transfer the profits made from a portfolio of Greek bonds bought by euro zone national central banks back to Athens and, if necessary, extend the weighted average maturities and grace periods to keep the gross financing cost below 15 percent of GDP.

But such debt relief, which could be promised in more binding terms on May 22, would still depend on Greece delivering on its reforms by mid-2018 and a debt sustainability analysis that would show Athens needs the debt relief to make its debt sustainable. (Reporting by Jan Strupczewski; Editing by Tom Heneghan)

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