Battle with Eurostat to prevent a €12 billion debt increase

Written by Tasos Dasopoulos

Eurostat returns with new requests for budget adjustments totaling EUR 29.5 billion, which again raises the issue of state guarantees worth EUR 17.5 billion for the Hercules project, as well as EUR 12 billion of deferred interest on the EUR 96 billion loan obtained by Greece. From the European Financial Stability Facility in 2011

Essentially, Eurostat suddenly insisted on the need for $29 billion in budget adjustments at the expense of public debt, while issuing relevant evidence in a different direction. According to the 2023 Regulation, state guarantees for bad loans, and in particular the financial impact on member states’ debts, will be examined for the amounts provided from 2023 onwards. However, the agency returns to its arguments demanding an increase of 17.5 billion in state guarantee debt for the “Hercules” plan. This is despite the fact that Athens responded appropriately to the same arguments and similar demands it had made in 2021 and 2022.

In addition to the Hercules guarantees, Eurostat retroactively requests half of the €25 billion interest on the €96 billion loan that Greece obtained from the European Financial Stability Facility, to be included in the debt from 2025. Beginning of the second memorandum. This means that Greek debt will “technically” rise by 5.6% of GDP. This would not cause any problems financially, because interest payments remain in a grace period until 2032. But even if that were hypothetical, it might give the impression of a slowdown in the downward debt spiral. This will not affect the rating agencies, which evaluate such a move impartially, as Fitch did recently. However, the slowdown in debt reduction may have given investors the false impression that Greece is not performing as well as its financial figures show.

The answer is Athens

Competent sources in the ministry confirmed that the issue of Hercules guarantees can only be considered in relation to the new guarantees that will be granted now, to create the so-called fifth banking pillar. Regarding the €17.5 billion granted from 2019 to 2022 in guarantees to the four systemic banks, answers have been provided. If Eurostat insists, it will get the same answers that have already been given.

Regarding the new issue regarding deferred interest on the loan from the European Financial Stability Fund, the same sources confirm that Greece proposed that from 2012 (when the loan disbursement began) the interest will be registered and recorded normally and eliminated from 2034, when the grace period will end and gradual repayment will begin. Until 2058. Then Eurostat explained in its document that this was not necessary. In addition, the agreement on Greece’s new financial rules specifically stipulated that these deferred interests, the amount of which the European Commission estimates at 22 billion euros and according to Greece at 25 billion, will not burden the debts of the following years. These are the arguments made by Athens in Eurostat’s new request.

At the most inopportune moment

And all this is happening while the Prime Minister announced in an interview with Bloomberg that Greece will this year pay a tripartite installment of $8 billion from the bilateral loan with the eurozone (GLF). To pay the triple tranche, 5 of the 15.7 billion from the European Stability Mechanism, which is expected to be launched in the fall, and 3 billion from the state’s remaining liquid assets will be used. Moreover, at the end of this year, general government debt is expected to fall to 152.3% of GDP from 161.9% of GDP at the end of 2023. In fact, if Eurostat requirements are not implemented, Greece will That’s this year. It could appear, in addition to a decrease in debt as a share of GDP, and a reduction in its absolute size by at least 1.5 billion euros.