EU debt relief for North African states?

European governments have opened the door to a radical offer of “debt relief” for Arab north African neighbours such as Egypt, EU and governmental sources told AFP 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 leaders to endorse at a March 1-2 summit revealed.

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

It 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.

The idea is gaining currency one year on from the start of the ‘Arab Spring,’ with “rapid progress” demanded by EU leaders, the summit declaration was to say, on negotiations over Free Trade Agreements between the EU and the countries of its “southern neighbourhood.”

“We need to see who else shows a determination here, who is neutral at this stage and who will put up opposition,” the EU official said.

“No-one’s really talking about numbers yet, the European Commission won’t come up with finished proposals until April,” said another official with a national government.

However, this source said “billions of dollars” could eventually be at stake.

The EU executive has drafted detailed proposals on relations with countries from Morocco to Egypt that EU leaders want to integrate into the world’s biggest barrier-free market for goods and services.

The draft summit declaration, if endorsed, would turn debt relief into an incentive 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 in June after ousted ex-leader Hosni Mubarak’s murder and corruption trial wraps up.

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

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

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

Hungary can be expected to protest. Only on Wednesday, economy commissioner Olli Rehn asked EU governments to suspend almost 500 million euros 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