January 26, 2015 12:13 pm

Free Lunch: Where does Greece go from here?

Martin Sandbu

What Alexis Tsipras wants, and what he can possibly achieve A

long-delayed referendum

Two years and three months - that's the time it took for the Greeks to get their referendum on the austerity programme demanded by their creditors. For that is what yesterday's election really was. In November 2011, Angela Merkel and Nicolas Sarkozy bullied then-prime minister Georgios Papandreou out of a referendum (they said it would have to be a vote on euro membership instead). It is no wonder that so many Greeks feel the victory of Syriza, which rejects the programme but wants to stay in the euro, takes political independence back from the EU-ECB-IMF creditor "troika".

This chart from Greece's interior ministry shows the scale of Syriza's victory (Syriza is in red, outgoing prime minister Antonis Samaras's New Democracy in blue):

The big question is of course whether Alexis Tsipras, the Syriza leader whose landslide result makes him Greece's next prime minister, can keep Greece within the euro while kicking the troika out of Greece.

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What does Tsipras really want to do? You could start at the horse's mouth. In a Reuters interview last month, he promised not to touch the debt to the IMF and the private sector, but to restructure the more than €200bn owed to the official creditors. Also read Tsipras's FT op-ed from last week, where he vowed to balance the budget, but through lower interest costs and a crackdown on the "tax-evading economic oligarchy". Can one trust his statements to an international audience? The answer may be yes. In Peter Spiegel's fascinating profile, Tsipras comes across as more pragmatist than firebrand.

A lot of cards to play

What, then, are the options open to Greece? On the face of it, things look very tight. Here are the repayments scheduled for this year. Cash reserves will be used up by mid-March when €2.5bn to the IMF falls due. The biggest hurdle is in the summer, when €11bn has to be paid, about half to the ECB. In addition, Greek banks struggle to get funding, and rely on the ECB for central bank liquidity support.

Note that almost every eurocent of the rescue loans has been used to service old debts and very little for domestic spending. Guntram Wolff at Bruegel explains why a Grexit won't help Greece: its inability to increase exports is not because wages are too high - they have already fallen a lot without exports picking up.

Look more closely, and there is more room for manoeuvre than appears at first sight - for both Tsipras and the eurozone. An illustration is Bruegel's wide-ranging list of policy options that could now be pursued.

Bruegel has also listed possible reliefs on Greece's debt short of writing down the principal amount. Their suggestions add up to 17% of GDP - not huge, but not insignificant. Jeffrey Sachs shows that more debt relief is technically straightforward - and, more importantly, Greece needs it like Germany needed it in 1953. The best solution to negotiate towards - economically meaningful and potentially face-saving for all sides - is a restructuring that does not write down the face value of the debt, but indexes repayments to economic growth. Nobel-winning economist Christopher Pissarides argued for this on BBC Radio 4's Today programme this morning. Zsolt Darvas outlined such an escape plan from the Greek debt trap in a Bruegel report two years ago.

Tsipras may also have some low-hanging fruit to pick. The Greek government budget is now in rough balance, which means that austerity - in the sense of spending cuts - may be over in any case. Any pick-up in growth, which is likely precisely because no further cuts are needed, will allow him to increase spending. So will the better tax collection he has promised. What is more, the day-to-day interest burden is low, as this chart shows:

Once counting in the eurozone central banks' promise to remit to Athens their profit on Greek bonds they hold, Tsipras’s demand for interest payments to be less than 2% of GDP may already be fulfilled. He is, in other words, in a position to claim a number of small victories without doing anything.

But that depends on his political skills - in particular his ability to avoid protracted uncertainty (which would kill growth again), financial panic (such as a run on deposits), and a perception that Greece is returning to its old bad ways of state capture by political insiders (but now Syriza instead of Pasok or New Democracy). One bad sign is the sudden collapse in tax receipts as a Syriza victory started looking likely. Tsipras's first order of business is to make clear that the change he promises is not a return to the past.

What will happen now? Crooked Timber goes through the game-theoretic strategy analysis. One nugget: "It’s worth remembering that the 'ever closer union' is essentially an empire-building project, and if you're building an empire, you don't let yourself lose provinces just because they're a pain in the neck." In other words, Tsipras has strong enough cards to win concessions.

 

January 27, 2015 11:14 am

Greek debt and a default of statesmanship

Martin Wolf

Creating the eurozone is its members’ second-worst monetary idea, a break-up the worst

©APS

ometimes the right thing to do is the wise thing. That is the case now for Greece. Done correctly, debt reduction would benefit Greece and the rest of the eurozone. It would create difficulties. But these would be smaller than those created by throwing Greece to the wolves. Unfortunately, reaching such an agreement may be impossible. That is why the belief that the eurozone crisis is over is mistaken.

Nobody can be surprised by the victory of Greece’s leftwing Syriza party. In the midst of a “recovery”, unemployment is reported at 26 per cent of the labour force and youth unemployment at over 50 per cent. Gross domestic product is also 26 per cent below its pre-crisis peak. But GDP is a particularly inappropriate measure of the fall in economic welfare in this case. The current account balance was minus 15 per cent of GDP in the third quarter of 2008, but has been in surplus since the second half of 2013. So spending by Greeks on goods and services has in fact fallen by at least 40 per cent.

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Given this catastrophe, it is hardly surprising that the voters have rejected the previous government and the policies that, at the behest of the creditors, it — somewhat halfheartedly — pursued. As Alexis Tsipras, the new prime minister, has said, Europe is founded on the principle of democracy. The people of Greece have spoken. At the very least, the powers that be need to listen. Yet everything one hears suggests that demands for a new deal on debt and austerity will be rejected more or less out of hand. Fuelling that response is a large amount of self-righteous nonsense. Two moralistic propositions in particular get in the way of a reasonable reply to Greek demands.

The first proposition is that the Greeks borrowed the money and so are duty bound to pay it back, how ever much it costs them. This was very much the attitude that sustained debtors’ prisons. The truth, however, is that creditors have a moral responsibility to lend wisely. If they fail to do due diligence on their borrowers, they deserve what is going to happen. In the case of Greece, the scale of the external deficits, in particular, were obvious. So, too, was the way the Greek state was run.

The second proposition is that, since the crisis hit, the rest of the eurozone has been extraordinarily generous to Greece. This, too, is false. True, the loans supplied by the eurozone and the International Monetary Fund amount to the huge sum of €226.7bn (about 125 per cent of GDP), which is roughly two-thirds of total public debt of 175 per cent of GDP. But this went overwhelmingly not to benefiting Greeks but to avoiding the writedown of bad loans to the Greek government and Greek banks. Just 11 per cent of the loans directly financed government activities. Another 16 per cent went on interest payments. The rest went on capital operations of various kinds: the money came in and then flowed out again. A more honest policy would have been to bail lenders out directly. But this would have been too embarrassing.

As the Greeks point out, debt relief is normal. Germany, a serial defaulter on its domestic and external debt in the 20th century, has been a beneficiary. What cannot be paid will not be paid. The idea that the Greeks will run large fiscal surpluses for a generation, to pay back money creditor governments used to rescue private lenders from their folly is a delusion.

So what should be done? The choice is between the right, the convenient and the dangerous.

In depth

Greece debt crisis

Syriza, Greece’s radical leftwing party, wins the election but is pitted against international creditors in the struggle over the debt and austerity programme

Further reading

As Reza Moghadam, former head of the International Monetary Fund’s European department, argues: “Europe should offer substantial debt relief — halving Greece’s debt and halving the required fiscal balance — in exchange for reform.” This, he adds, would be consistent with debt substantially below 110 per cent of GDP, which eurozone ministers agreed to in 2012. But such reductions should not be done unconditionally. The best approach was set out in the “heavily indebted poor countries” initiative of the IMF and the World Bank, which began in 1996. Under this, debt relief is granted only after the country meets precise criteria for reform. Such a programme would be of benefit to Greece, which needs political and economic modernisation.

The politically convenient approach is to continue to “extend and pretend”. Undoubtedly, there are ways of pushing off the day of reckoning still further. There are also ways of lowering the present value of interest and repayments without lowering the face value. All this would allow the eurozone to avoid confronting the moral case for debt relief for other crisis-hit countries, notably Ireland. Yet such an approach cannot deliver the honest and transparent outcome that is sorely needed.

Your opinionShould Greece be given some sort of debt relief in return for reforms?

Yes, but only on interest payments Yes, it should substantially reduce the burden No, it has received enough international financial assistanceVoteView Results

The dangerous approach is to push Greece towards default. This is likely to create a situation in which the European Central Bank would no longer feel able to operate as Greece’s central bank. That then would force an exit. The result for Greece would certainly be catastrophic in the short term. My guess is that it would also reverse any move towards modernity for a generation. But the damage would not just be to Greece. It would show that monetary union in the eurozone is not irreversible but merely a hard exchange-rate peg. That would be the worst of both worlds: the rigidity of pegs, without the credibility of a monetary union. In every future crisis, the question would be whether this was the “exit moment”. Chronic instability would be the result.

Creating the eurozone is the second-worst monetary idea its members are ever likely to have. Breaking it up is the worst. Yet that is where pushing Greece into exit might lead. The right course is to recognise the case for debt relief, conditional on achievement of verifiable reforms. Politicians will reject the idea. Statesmen will seize upon it. We will soon know which of the two they are.

martin.wolf@ft.com

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January 27, 2015 2:11 pm

Economist Varoufakis named Greek finance ministerKerin Hope in Athens

Greece’s new prime minister Alexis Tsipras, leader of the radical leftwing Syriza party, announced his cabinet on Tuesday, handing the top economic posts to a senior former communist politician and an Athens University professor who has become his closest economic adviser.

©AFP

Giannis Dragasakis

Giannis Dragasakis, Syriza’s frontman for discussing the economy with foreign creditors, was named deputy prime minister with responsibility for overseeing negotiations with the troika of bailout monitors from the European Commission, the International Monetary Fund and the European Central Bank.

 

The 67-year-old former central committee member of the Greek communist party is the only cabinet member with experience of government, having served as deputy finance minister in a shortlived all-party government in 1989.

©AFP

Yanis Varoufakis

Yanis Varoufakis, an Athens university economics professor and former economist-in-residence for a US online gaming company, was appointed finance minister. He will oversee public spending and revenue collection and represent the government at meetings of eurozone finance ministers.

Daunting challenges lie ahead for Mr Tsipras’s cabinet, from convincing politicians and bureaucrats in Berlin and Brussels that Greece is not about to overturn fiscal and structural reforms, to securing an extension to the bailout deal before it runs out on February 28. The government must also reassure voters by delivering quickly on promises to alleviate poverty.

Euclid Tsakalotos, an Oxford-educated economist who also teaches at Athens university, became deputy minister for international economic relations whose tasks will include trying to attract foreign investment.

The development portfolio went to George Stathakis, a professor of political economy at the university of Crete who will oversee a “super-ministry” that also includes tourism, transport and shipping.

©AP

Panos Kammenos

Only one ministerial post went to Syriza’s coalition partner: the rightwing Independent Greeks party leader Panos Kammenos was named minister of defence.

The leader of Syriza’s far-left faction, Panagiotis Lafazanis, took another super-ministry portfolio covering energy, industry and environmental affairs.

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Observers said Mr Tsipras’s decision to shrink the cabinet from 20 to 10 ministries suggests the administration would be tightly controlled by the prime minister himself and his chief of staff Nikos Pappas, who became a minister of state.

However, one unprecedented portfolio sent a message that the Syriza-led government was preparing a broad-based crackdown against tax evasion and corruption, seen by creditors as a big obstacle to a sustained economic recovery.

Panayotis Nicoloudis was appointed minister for transparency, with a brief to co-ordinate anti-corruption agencies ranging from the financial police to the economic prosecutor’s office.

Greece: the case against ‘structural reform’ Alan Beattie

| Jan 27 13:43 | 1 comment | Share Share this on

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A former colleague on the FT (no names, but he now runs the UK’s Office for Budget Responsibility) used to muse that a useful all-purpose headline for any story about an emerging market economy was “[Insert Name Of Country Here]: Structural Reform?”

Putting “Greece” into that formula after Syriza’s resounding victory in Sunday’s election, where do we stand? Every pundit in Europe is retailing some version of the insightful observation that it is all about whether Syriza — and its leader, Alexis Tsipras, Greece’s new prime minister (above) — can be induced to do enough structural reform to buy the fiscal leeway and debt relief it wants.

The problem with this view is that “structural reform” is a crude and unhelpful term.

Given the positive connotations of “reform”, the expression not only carries the propagandistic implication that any change is good, but also lumps together all microeconomic policy measures under one rubric. Thanks to its association (following the more sinister predecessor “structural adjustment”) with deregulation and privatisation pressed on developing countries by the IMF and World Bank, the label has the indelible taint of neoliberalism. An avowedly left-wing party like Syriza will always struggle for credibility with voters if it is perceived to be sweeping away social safety nets and other protections for workers just to get the eurozone’s fiscal boot off its neck.

That the microeconomic structure of the Greek economy (as opposed to its position in the macroeconomic cycle) is a shambles is not in doubt: closed professions, low labour force participation, a corrupt bureaucracy and a political class that hands out state contracts to a favoured few and fails to collect tax from almost everybody. And unlike, say, Spain or Italy, Greece’s inefficiencies are such that some kind of structural change is probably necessary for it to exit crisis mode, let alone show healthier growth in the medium term.

But fixing a chunk of this has nothing to do with deregulation. As part of their plan to target the “oligarchy”, Syriza — whose victory on Sunday sparked celebrations (right) — have promised to clamp down on tax avoidance by the rich and clean up the notoriously corrupt public procurement system. Improving tax collection is already a big part of Greece’s current agreement with the EU-IMF-ECB troika. If this happens — an “if” roughly the size of Crete, admittedly — it would stand as an excellent example of redistributive left-wing structural reform. To the extent that an economy is rigged to benefit a national elite, as Greece’s partly is, a left-wing party may be one of the best hopes of positive change.

Of course, that is not Greece’s only problem. Tax evasion is endemic throughout the economy, not just at the top, and breaking open Greece’s closed professions means threatening the security of workers, such as taxi-drivers, who may be rent-seekers but could hardly be called oligarchs.

Still, it would enormously help the quality of discourse in, and particularly outside, Greece to take structural change measures one by one, not assume they are an once-and-for-all package.

Syriza’s plans for a big hike in the minimum wage, for example, which would undo part of the changes demanded by the troika, may or may not be a good thing. But it should be clear that conceptually, a minimum wage increase is quite distinct from, say, improving tax collection. While the current application of this analysis to Greece is contentious, some experts have argued more generally that a demand-boosting impact of a higher minimum wage may currently outweigh the supply-side impact of more expensive labour.

The other reason to be cautious about “structural reform” packages is that all manner of boneheaded ideas can get shoved into the grab-bags of policy changes assembled during a crisis. (Rescue loans with lots of shiny deregulation requirements attached to them acquired the unduly poetic name of “Christmas tree programmes” inside the IMF.)

It is notable, for example, that part of the internationally-admired reform programme of Mexico’s president Enrique Peña Nieto involved undoing the effect of an earlier spurt of enthusiasm for structural adjustment. Last year Nieto moved to correct, at long last, the horribly botched 1990 privatisation of the Mexican telecoms sector which helped to make Carlos Slim (below) the richest man in the world by handing him a private monopoly.

Even generally sensible ideas have adverse consequences. When the troika urged Spain to get its public finances in order, it probably did not envisage impoverished Madrileños being evicted by Goldman Sachs.

What the Syriza government does to resolve the myriad problems of the regulations, structures, customs and organisations of Greece’s dysfunctional economy is indeed one of the most interesting stories in Europe today: there the pundits are right. But such actions need to be looked at sector by sector, measure by measure, not corralled together under a crude and biased title.

A brief collection of reaction to Sunday’s election in Greece follows. Before we hear from the professional financial crowd, however, a word from Eric LeCompte, executive director of Jubilee USA…

This election was a referendum on austerity and debt policies. The people of Greece voted and said no to austerity and yes to renegotiating Greece’s debt.

Austerity programs can be likened to trying to help a patient on life support by punching them.

So, this could get interesting. Greece’s pile of sovereign debt is almost twice the size of annual economic output, the International Monetary Fund, European Central Bank and European Union have helped to fund the country since 2010, imposing vicious/essential (delete as appropriate) cutbacks and reforms on the state to fix the problems/keep the euro intact. There are more young people out of work than in it, while Greece is supposed to dedicate almost 5 per cent of its economy to repaying debt in 2016.

First there are the assessments of Alexis Tsipras, leader of the radical Syriza party, which won Sunday’s election in Greece. The FT’s Tony Barber wonders whether the radical will in fact govern like a pragmatist, a Brazilian Lula rather than a Venezuelan Chávez.

David Mackie and co at JP Morgan set out some of the areas where the so-called Troika of multinational institutions and a new Greek coalition will have to work things out.

Assuming a coalition is formed, which seems very likely at this stage, the new government will need to decide relatively quickly how it will approach the Troika. A proposal from the new government will be needed to start discussions with the Troika on a further extension of the [European Financial Stability Facility] program—which is due to expire at the end of February. The Troika may only agree on a further extension of the EFSF program if the new government makes certain commitments. The new Greek government will also need to make proposals to the Troika in order to start discussions on how to successfully conclude the EFSF program (and receive the delayed €7bn of disbursements) and on how to structure further financing arrangements (most likely an ESM Enhanced Conditions Credit Line).

It is not clear how Syriza will develop a constructive proposal to approach the Troika, which respects what are likely the Troika’s four lines in the sand (an ongoing structural reform effort, the maintenance of a

primary surplus, no face value debt relief and net present value debt relief only in exchange for acceptable reforms). Syriza will be able to offer proposals which differ from those of New Democracy, but it will still have to work within the broad contours of the region’s governance framework. Our judgment has been that the Troika will deal with a Syriza government as firmly as it dealt with the previous government, while recognizing that there is likely some scope for the composition of the adjustment and reform effort to be changed.

One key uncertainty is whether the Troika will change its view on the primary surplus objective, presumably in exchange for other structural reforms. In the current program there is an objective for the primary surplus of 4.5% of GDP in 2016, which would need more fiscal measures. We have long argued that this primary surplus objective is too high given the net present value debt relief that Greece has already received. But, the Troika has continued to focus on the headline debt-to-GDP ratio as a guide to what the fiscal objective should be. It is not clear whether the Troika’s position on this will change.

The bank identifies four points of pressure. First is general economic and financial stress, with Greece worse off if there is a standoff. Second are refinancing needs this year, €8.5bn IMF loans, €6.7bn of debt owned by the ECB, spread throughout the year. Third are the Greek banks, who rely on the ECB for financing. Finally, Quantitative Easing: Greece needs Troika agreement to get in on that.

JPM remains bearish on the euro, with a target versus the dollar of $1.10. Also they continue to like long duration and swap-spread widening. Here’s one idea:

On Friday we entered swap spread wideners on the German curve with the Buxl as our preferred point. The uncertainty around the Greek political landscape should put widening pressure across the German curve, especially if we see any flare up in concerns around Grexit leading to flight to quality dynamic. We keep wideners in 30Y as we believe the scarcity premium attached to German paper will impact mostly the ultra long end.

Elsewhere, here’s Gary Jenkins of ING Capital, on the political calculations:

exactly what kind of change will be achievable is a moot point as Ms Merkel may prefer to see Greece leave the Eurozone than allow Mr Tsipras to dictate the entire economic policy of the euro area, although the most likely outcome remains a compromise which maintains the status quo because the alternatives are potentially so negative. Mr Tsipras could of course play hard ball and there have been suggestions that Greece could default on the basis that they are running a primary surplus. Technically possible I guess but any politician taking that decision might want exact clarity on how much of the economic activity is reliant upon being a member of the Eurozone before taking that option.

The unknowns of withdrawing from the Eurozone are such that Mr Tsipras might rather prefer to take his time through negotiation and continue to enjoy the benefit of the QE program. If that is the case then Greek bonds may well be the major beneficiaries of QE from a performance perspective over the next 6-12 months. After QE finishes (if…) might be the better time for Mr Tsipras to consider the nuclear option.

What happens now, though? Lets turn to Citi’s Ebrahim Rahbari for some practicalities:

Next steps. Syriza leader Tsipras will likely be given a three-day mandate today to form a government. The Eurogroup on January 26 will discuss an extension to Greece’s bailout (which expires at end-February), but a formal request for such an extension by the Greek government is required before it can be approved. Negotiations over a follow-up bailout may well take months, in our view, and be associated with some financial market volatility. In this context, it is worth noting that even though an eventual agreement on a bailout is likely needed to keep Greek banks and the Greek government funded, buffers exist to potentially address funding pressures in the interim, such as emergency liquidity assistance for Greek banks or increased bill issuance or arrears for the Greek sovereign.

BNY Mellon’s chief market strategist Simon Derrick, meanwhile, caught some German reaction, which we’ll bold.

the real ground zero for the crisis right now is probably Germany as officials, politicians and the public contemplate both unpopular monetary policy settings and Greece’s calls for an end to “austerity” (while also considering what this might mean at the polls for Spain – the leaders of Podemos have been watching developments in Greece very closely as they consider their approach to the election later this year). Beyond the reaction in the German popular press to events over the past few days, the most telling response so far has come from the head of the Bundesbank, Jens Weidmann. Speaking to German public broadcaster ARD yesterday he stated: “I believe it’s also in the interest of the Greek government to do what is necessary to tackle the structural problems there. I hope the new government won’t call into question what is expected and what has already been achieved.” When asked directly about the possibility of a third haircut for Greece, he said: “For me it’s decisive that Greek public finances are stable in the long term and as long as that’s not the case, a haircut would only grant a short pause for breath.” This sounded an awful lot like a “no.”

Still, there is at least a hint of optimism from Huw Williams at UBS, or at least a hint of grounds for possible optimism in the future:

Key points: From possible to improbable

We identify three crucial areas of talks. Firstly, we think that there could be a compromise on debt relief, as long as it is in the form of extending maturities and lowering costs (a recent Bruegel paper calculated a possible reduction to the NPV of Greek debt by 17% of GDP using these tools1). In contrast, we believe that outright haircuts are unlikely to be acceptable for the creditor countries. Secondly, some easing of austerity and primary surplus targets (from the planned 4-4.5% of GDP until 2022) might also be agreed, although this is likely to come at the cost of slower future debt reduction. Thirdly, probably the most difficult area of the discussions might be around structural reforms, as the Troika sees structural reforms as the key precondition to lift economic growth in Greece, while SYRIZA is aiming to reverse many of these measures, based on its pre-election manifesto. We are uncertain whether the talks could be concluded by the end-February review deadline, and similarly, whether the Eurogroup would be willing to extend the deadline and for how long.

Finally, Giovanni Zanni of Credit Suisse note the key question of the junior party in the coalition.

There are three likely candidates: the centre-right, anti-memorandum, ANEL; the centrist, pro-European, To Potami; and Venizelos’ center-left (ex-Pasok) party. Markets will probably be relatively reassured with the latter two, and worried if ANEL is chosen instead. Probably To Potami would make more sense, as it is a new party with little or no ties to the previous administration. An alliance with Pasok seems unlikely, at this stage. We should know pretty soon, anyway.

And he too sees the possibility of a happy ending:

QE helps stabilise expectations on the euro area and provides a further incentive for Greece to seek an agreement with the European Commission (and the IMF), we believe. And contagion can also work in reverse: if Greece manages to strike a deal with the EU/IMF, the overall result of the Greek elections and of an “extremist” party gaining power will act as a reinforcement of the solidity of the Union, rather than the opposite. As such, all parties are interested in a positive solution. Europe is ready to be more flexible, we believe: see for example the recent relaxation of the Stability Pact rules last week. And Greece has a series of incentives (QE of its bonds, various support mechanisms coming from Europe) to agree on a common path of reforms, we believe.

But he also notes that it could come after a protracted bout of volatility in the coming weeks and months.

A national democratic mandate versus international institutions, inside a currency union. Watch this space.

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Greece’s debt pile: is it really unsustainable?Ferdinando Giugliano, Economics Correspondent

©AFP

Whatever government emerges after Greece’s parliamentary election, Athens will soon lock horns with its international creditors over its mountain of public debt, which stands at about 175 per cent of gross domestic product.

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Eurozone governments have already made commitments to further debt relief for Athens, as long as it sticks to reform and austerity. Alexis Tsipras, leader of the leftwing, anti-austerity Syriza, wants to go much further and cut Greece’s debt pile by a third, arguing that the burden is “unsustainable”.

But is it?

Other eurozone governments, who hold directly or via the European Financial Stability Facility, approximately two-thirds of Athens’ €317bn liabilities, are more sceptical. They argue that Greece has already benefited from two rounds of relief that have significantly cut the burden of the debt.

The terms on Greece’s debt pile have become progressively more manageable. The maturity on the bilateral loans provided by eurozone member states in May 2010 has been extended to 2041 and the interest rate cut from between 300 and 400 basis points over the three-month Euribor rate, to just 50.

The EFSF loans, whose yield is just one basis point over the average borrowing cost of the EFSF itself, now have an average maturity of more than 30 years. In 2012, the eurozone finance ministers agreed on a grace period of 10 years over which Athens will have to make no interest payments.

As a result of these changes, the average maturity of Greece’s debt is now 16.5 years, double that of Germany and Italy, according to data compiled by Joakim Tiberg, a strategist at UBS. Portugal and Ireland,

which also benefit from favourable terms for their own bailout loans, have average maturities of 11 and 12.5 years, respectively.

Furthermore, the amount Greece pays each year to service its debts has steadily come down. Zsolt Darvas, a research fellow at Bruegel, a think-tank, has calculated that Greece’s nominal interest spending in 2014 was 4.3 per cent of gross domestic product, less than Italy or Portugal.

In fact, this is probably an overestimate of the real interest burden. Greece does not have to pay any interest on its EFSF loans and receives back the yield it pays to the European Central Bank and other national central banks, which hold just under one-tenth of its debt. Taking this into account, Mr Darvas calculates that total interest expenditure in 2014 was 2.6 per cent, only marginally above France’s 2.2 per cent.

On the basis of these figures, many economists and European policy makers are questioning whether Greece’s raw debt-to-GDP figure is a meaningful measure of the burden of past liabilities on the economy.

“A ratio of 170 per cent does not mean anything,” said Lorenzo Bini Smaghi, a former executive board member of the European Central Bank. “The debt has a very low interest rate and a maturity of over 15 years. Its impact on the economy is much lower than in Portugal or Italy,” he added.

A new round of restructuring could also create political problems for eurozone governments, many of which, as a percentage of GDP, face a higher interest bill than Greece.

“How can the Spanish or Italian prime minister tell voters that Greece has a lower interest burden than we have, but we still need to give them debt forgiveness?” said Mr Darvas. He argues that rather than providing Athens outright relief, eurozone governments should give Greece assurances that they are ready to further extend maturities and cut rates were growth to disappoint in the future.

Others, however, are sceptical that this approach would provide enough certainty for companies to resume investing. “[The existing maturities] are not very long, they should be extended to 50 or 60 years,” Chris Pissarides, the Nobel-winning economist told the Financial Times.

“The problem is that [the current debt profile] is introducing too much uncertainty over what the future will bring and Greece needs investment now,” he added.