EU ponders debt relief as a ‘signal of change’ for Arab states

European governments have opened the way for a radical offer of “debt relief” for Arab North African and Middle Eastern neighbours, EU and governmental sources told Agence France-Presse late on Wednesday.

“Member states will examine possibilities of using debt relief as a signal of change” along the southern Mediterranean rim, conclusions drawn up for European Union (EU) leaders to endorse at a March 1 and 2 summit revealed.

The plan emerged barely 24 hours after eurozone governments backed an unprecedented write-down of Greek sovereign debt held by private investors which is expected to reduce Athens’ debt burden by nearly one third, some €107-billion ($141-million).

The North Africa initiative is being driven primarily by the French government diplomats said, on the eve of first talks on the proposal among ambassadors from the 27 EU states in Brussels on Thursday morning.

“Expect a vigorous discussion,” said one senior EU official on the possible terms for debt relief that could be awarded in exchange for democratic reforms and preferential trade terms.

‘Rapid progress’
The idea is gaining currency one year on from the start of the Arab Spring, with the EU leaders set to demand “rapid progress” on negotiations over free trade agreements between Europe and the countries of its “southern neighbourhood”.

The EU classes this group as including: Algeria, Egypt, Gaza and the West Bank, Israel, Jordan, Lebanon, Morocco, Syria and Tunisia.

Egypt and Tunisia have been the biggest beneficiaries to date of loans from the EU’s European Investment Bank, the EIB’s website detailing nearly €4.0-billion to each prior to the revolts a year ago. The EIB has suspended loans to Syria, which had received nearly €2.0-billion by 2010.

Billions more in EU funds have been set aside through to 2013 as Europe steps up energy investments in particular, while national governments also make their own loans and investments — France and Britain having traditionally the biggest presence in the region.

Ahead of a “top-to-toe” revamp of the EU’s policy in the region due on April 25, another official with a national government said “billions of dollars” could eventually be at stake.

“We need to see who else shows a determination here, who is neutral at this stage and who will put up opposition,” one of these officials said.

Ambitious plans
EU leaders have ambitious plans to integrate fully this region into the world’s biggest barrier-free market for goods and services as they turn to former colonies to help renew stagnant economic growth.

The draft summit declaration, if endorsed, would turn debt relief into an incentive to adopt EU political norms, alongside threats to withdraw support for states accused of oppression or grave human rights violations.

The biggest of the Arab Spring revolts one year ago, Egypt is struggling with sharply dwindling foreign reserves and transitional authorities are weighing up a much-delayed aid package worth some $3.0-billion from the International Monetary Fund.

Credit rating giant Standard & Poor’s raised its risk assessment for Egypt earlier this month, citing political instability as Cairo moves towards the election of a new president, expected this summer.

Egyptian press reports in recent days have said the EU could lend the country €500-million alongside money from Washington.

Thursday’s discussion on who might benefit and on what terms is sensitive, with EU trio Greece, Portugal and Ireland having to repay mainly eurozone partners for their own bailouts for years to come.

Fears remain about the long-term prospects of full repayment from Athens.

Hungary can be expected to protest. On Wednesday, economy commissioner Olli Rehn asked EU governments to suspend almost €500-million in grants due to Budapest next year.

The governments of Hungary, Poland and Romania last week expressed mounting fears that incentives for southern EU neighbours would come at their expense, the EU source also said. — AFP

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