June 18, 2018 / 2:59 PM / 6 months ago

FACTBOX-Building blocks of a Greek debt relief deal

BRUSSELS, June 18 (Reuters) - Euro zone finance ministers will discuss debt relief for Greece on Thursday to ensure the country can return to market financing after eight years of living on loans from euro zone governments and have sustained economic growth.

For Greece to gain market confidence and for the economy to grow, Athens needs to implement agreed reforms. But the euro zone - Greece’s main creditor now - also has to give the country more breathing space on debt.

Below are the key building blocks for the debt relief deal that the ministers are to discuss on the basis of a debt sustainability analysis. The deal would enter into force after Greece exits its latest bailout on Aug. 20.

WHAT WILL MINISTERS DECIDE ON THURSDAY

- the extent of debt relief for Greece

- the size of a cash send-off for Athens to keep it liquid 18 to 24 months after the bailout ends

- a way to monitor Greek policy after the bailout ends to make sure there is no return to past mistakes

CASH SEND-OFF

- The euro zone is considering leaving Greece with enough cash so that it does not have to borrow from the market for the next 18 to 24 months - around 20 billion euros.

How long the money would last in practice will depend on some of the debt relief steps, such as the potential replacement of more expensive loans from the International Monetary Fund with cheaper euro zone credit.

LONGER MATURITIES, GRACE PERIODS

- The euro zone is considering extending the maturities and grace periods, though only on loans granted to Greece under the second bailout, by up to 15 years. The average loan maturity now is 32.5 years.

- This would mean the re-profiling of 130 billion euros, or some 40 percent of Greece’s debt, and would smooth out some debt servicing peaks after 2030, giving Athens a better chance to issue bonds of 10 years and more in the coming years.

EARLY REPAYMENT OF IMF, OTHER LOANS

- The euro zone could replace some 10 billion euros worth of loans to Greece from the IMF, which have an interest of 3-4 percent and shorter maturities, with its own loans that cost 1 percent and can span decades.

- The same could be done for high-yielding Greek bonds held by the system of European Central Banks.

RETURN OF CASH - REFORM INCENTIVE FOR GREECE

- Euro zone governments may choose to give back to Greece the profits their central banks are to make from maturing Greek bonds in their portfolios. This would mean around 4 billion euros until 2022.

- Euro zone governments are thinking of using that money to return 1 billion euros a year to Greece over the next four years on the condition that Athens sticks to the reforms it agreed on with the euro zone.

GROWTH ADJUSTMENT MECHANISM

- There is an idea to link the amount of money Greece has to spend on debt servicing to the rate of economic growth. This way Greece would pay more when fast growth allows for it, and less during economic downturns.

- The idea is to keep Greek gross financing needs below 15 percent of GDP over the medium-term and below 20 percent of GDP in the long-run. (Reporting by Jan Strupczewski Editing by Alison Williams)

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