EU finance ministers are meeting in Brussels to consider granting 10.3 billion euros in urgently needed funds to cash-strapped Greece. But how to reduce the country's massive debt burden will likely be a sticking point.
As the eurozone's 19 finance ministers gathered in Brussels on Tuesday, Greece was hopeful that the Eurogroup would soon give the green light to unlock the next round of bailout funds to refill dwindling state coffers.
Athens is looking for around 10.3 billion euros ($11.5 billion), its latest payment from the 86-billion-euro bailout program agreed to last year, to refund major upcoming loans to the European Central Bank (ECB) and the International Monetary Fund (IMF) in July. The country has already fallen behind in recent months, slashing everyday government spending and public sector wages.
But the decision on how to reduce the country's debt burden, a condition the IMF has insisted on if it is to provide any further financial support for Greece, is expected to remain a sticking point at Tuesday's meeting.
On Monday, a new report by the IMF's debt sustainability analysis (DSA) said if Athens is to have a chance at repaying its enormous debt load, Greece needs unconditional debt relief from EU creditors through at least 2040 in order to rebuild its economy and build up a fiscal surplus. The DSA called on creditors to fix interest rates on Greek debt at no more than 1.5 percent over that time and guarantee that debt, predicted to reach more than 333 billion euros this year.
But Germany, the EU's economic engine, has been opposed to any form of debt relief, or haircut, insisting Athens must undertake wider fiscal and structural reforms before EU creditors agree to reduce Greece's debt burden.
Zsolt Darvas, a senior fellow at the Brussels-based Bruegel economic think tank, put the German reluctance into perspective.
"Greece's financial assistance programs were approved by the [German] Bundestag, and the government always promised that the money would be paid back," he told DW. "Debt relief would be an acknowledgement that those assessments were incorrect."
Before the meeting on Tuesday, Eurogroup head Jeroen Dijsselbloem stressed that "it's not an option to go on without the IMF."
"There is a reason to look at debt relief because the debt is very high and there will be some problems in the future, I think the debt analysis shows that," he said. "How big these problems are and how we can deal with them and when we can deal with them, that's today's topic."
German Finance Minster Wolfgang Schäuble downplayed talk of a rift between the Eurogroup and the IMF. He said Greece's recent reforms needed to be closely scrutinized before any decision could be made, but added that he hoped the finance ministers would be able to come to an agreement on Tuesday.
"We will also find a way forward this time," he said, referring to past bailout agreements.
"Ultimately, who is right and who is wrong remains to be seen. In the past, the pessimistic assumptions of the IMF weren't always accurate."
'Greece is sticking to its promises': Tsipras
On Sunday, as more than 10,000 people protested outside parliament, Greek lawmakers passed another set of controversial spending cuts and tax hikes, intended to pave the way for a deal on Tuesday.
The bill introduced a contingency mechanism designed to automatically cut government spending if Athens fails to meet the 2018 fiscal targets of its bailout agreement - a key condition for Greece's international lender, the IMF.
"European leaders get the message that Greece is sticking to its promises. Now, it's their turn," said Greek Prime Minister Alexis Tsipras.
Speaking to the press in Paris on Monday, a day after Greece passed the divisive bill, EU Financial Affairs Commissioner Pierre Moscovici said the new austerity measures were "key" to unlocking the urgently needed bailout funds.
"A key step has been taken [...] towards the conclusion of the first stage of the Greek program," said Moscovici. "I hope and wish for an agreement at the Eurogroup meeting."
Greece has been receiving financial aid from other eurozone countries and the International Monetary Fund since a bailout agreement in 2010.