By Jan Strupczewski
BRUSSELS (Reuters) – International lenders and Greece will renegotiate the program on which the second financial bailout for Athens is based because the original has become outdated, a senior euro zone official said on Tuesday.
Greece secured a second, 130-billion-euro bailout package in February from Europe and the International Monetary Fund, but two general elections in May and June delayed the implementation of the conditions attached to the bailout.
The United States, the largest IMF member, said it supports discussions to review the Greek bailout program, but German Chancellor Angela Merkel has said that any loosening of Greece’s reform promises would be unacceptable.
"Anybody who would say that we need not, and cannot renegotiate the MoU (memo of understanding) is delusional, because he, or she, would be under the understanding that the whole program, the whole process, has remained completely on track ever since the weeks before the Greek first election," the official said.
"Because the economic situation has changed, the situation of tax receipts has changed, the rhythm of implementation of the milestones has changed, the rhythm of privatization has changed — if we were not to change the MoU — it does not work," he said.
"We would be signing off on an illusion. So we have to sit down with our Greek colleagues and say: this is where we should be in July, and this is where we are in July, and there is a delta. Let’s find out what the delta is and then how to deal with the delta — that is a new MoU," the official said.
The official said that representatives of the International Monetary Fund, the European Central Bank and the European Commission will come to Greece as soon as there is a new government to review the implementation of the program so far and prepare for negotiations.
"It is no secret, quite logical in fact, that due to the time passed without a functioning government in place that can take the required decisions, because of this, there have been significant delays," the official said.
"The conclusion is that they have to engage in discussions on the memorandum of understanding and bring it back onto an even keel," he said.
The troika will report its findings to euro zone finance ministers who will decide how to move forward and troika officials will then negotiate with Greece.
"Once we have reached a satisfactory conclusion, a new MoU will be signed that will contain, as usual, the required milestones to be undertaken and disbursement scheduled, contingent on the successful conclusion of a review," the official said.
Any review of the terms of the bailout would still retain the main goals of the program, debt sustainability and reforms, the official said.
But he played down paying too much attention to precise numbers forecast far into the future.
"One of the main issues is that debt sustainability is achieved and maintained. There is sometimes a belief that there is a magic figure of 120 percent of GDP," the official said.
"Anybody who can forecast the debt to GDP ratio of a country in a very, very volatile and challenging economic environment in 2020 is probably cleverer than all of us together," he said.
"Debt sustainability is one of the two big targets. There are quite clear views in the Euro group on the fact that debt sustainability 4-8 years out cannot be compromised," he said.
"That is one big target. The second big target is …structural reforms in Greece by the Greek authorities, which are a necessary condition for bringing Greece on a growth track," he said.
(Reporting by Jan Strupczewski; editing by Rex Merrifield and Anna Willard)