The finance ministers of the euro zone found a last-minute agreement on Monday night to reduce Greece’s huge public debt and restore confidence in a country that has been in deep economic recession for the last three years. The package includes a series of measures to ease Greece’s financial commitments: a reduction in interest rates on loans, a lengthening of the maturities of credit lines, a moratorium on debt servicing, and a buy-back operation to repurchase Greek government bonds on the secondary market.

Many
observers criticize the Troika’s recent policies for having worsened the
economic and social situation in Greece, but at least this week the eurozone
countries have shown a long-awaited solidarity. Their goal is to reduce the
Greek debt, now at 160% of gross domestic product, in order to bring it to 124%
of GDP in 2020, after a peak at around 195% of GDP over the next two years,
according to fresh estimates by the International Monetary Fund. Will it work?
Many economists doubt it. More
important, however, is a sentence tucked at the end of  a long and mostly technical-filled statement
published last night: “Euro area Member States will consider
further measures and assistance (…), if necessary, for achieving a further
credible and sustainable reduction of Greek debt-to-GDP ratio", and in particular a debt
ratio “significantly below 100% in 2022”. The
stance is politically significant, even though it relates to the medium-term as
any new measures are conditionned to when Greece will once again achieve a
primary budget surplus. In practice, the eurozone countries have opened the
door to a possible debt restructuring by international creditors as extraordinary
measures at some point appear inevitable to reach very ambitious debt goals.
Asked about the real meaning of the stance, the French finance minister Pierre
Moscovici said that the sentence contained "constructive ambiguity". The IMF
led the recent negotiations, long insisting that governments agree to write off
at least part of the Greek debt. Many countries have so far opposed this idea.
But Monday’s statement shows how much the Eurogroup sought to compromise and
how much the German position softened. Only two and a half years ago Germany
refused to lend money to its neighbors, reminded time and again its partners
about the no-bail out clause included in the Treaties, and was deeply worried about
the possibility of creating moral hazard. Monday night, for better or worse,
the German Finance Minister Wolfgang Schäuble accepted the idea of a Greek debt
relief, despite the obvious moral and political implications of this choice. In
theory, a write-off might be discussed in the second half of the decade, only
after Greece manages to reach a primary budget surplus. However, if by using less
radical measures the debt reduction doesn’t succeed–and this looks possible,
if not probable –the idea of ​​a full restructuring is likely to become a
concrete possibility earlier than envisaged. Debt relief can be assessed in
different ways. On the one hand, it can be seen as immoral and unfair. On the
other hand, it can be viewed as inevitable, and perhaps even essential to allow
a country to regain its footing. In
practice, the possibility of a write-off is an important new step towards a mutualization
of public debts, beyond the many proposals about eurobonds and debt redemption funds.
The road towards this aim is still very long and cumbersome. One cannot rule
out new doubts and uncertainties, while the backing of the German public opinion
remains elusive. However, in retrospect, Monday’s agreement on a new aid
package for Greece might become a crucial juncture in the search for a solution
of the eurozone debt crisis.