Euro zone aims to cap Greek debt servicing at 15% of GDP

Euro-zone governments, Greece's biggest creditors, agree that debt relief for Athens should be accomplished by capping its debt servicing costs at 15% of gross domestic annually, the chairman of the euro zone finance ministers, Jeroen Dijsselbloem, said on October 8.

But discussions on whether the relief should be granted up front, over time as some conditions are met, or as a mix of the two, would only start later this year, after Greece successfully passes the first assessment by the creditors of its bailout reforms, he said.

"There is a broad understanding about the method we should choose, that is to look at the annual financing needs for the sovereign debt," Dijsselbloem told Reuters in an interview.

"Second, there seems to be a broad understanding that a good standard would be to have the cap at a maximum of 15% of GDP," he said.

"And third, and we are working on that with the European Commission and the International Monetary Fund, would be to have a common understanding of scenarios: What are the realistic expectations in a normal scenario? Or in an adverse scenario in terms of growth and inflation, etc?" he said.

Athens, and initially also the IMF, has been pushing for a haircut on Greece's nominal sovereign debt, which is to top 180% of GDP this year, according to commission forecasts.

But euro-zone governments argue that what matters more than the nominal value of the debt is how much it burdens the economy through annual debt servicing costs.

After two bailouts since 2010, two thirds of Greek debt is now held by euro-zone governments that extended loans to Athens with an average maturity of 31-32 years and an interest rate of around 1% - a more favorable rate than that paid by Italy.

Moreover, Greece does not have to start repaying these loans until 2022, all of which makes the annual debt burden for Greece quite manageable, euro zone officials argue.

Dijsselbloem indicated that a complete upfront debt relief deal might not be the best solution.