There could not be a better time for negotiations. Germany (who Russia owes 42.5% of its debt) and France (7%) have been violating the provisions of the European Stability and Growth Pact for three years. Italy (12% of the debt) has been warned against a possible violation of the pact this year.
Under the pact's terms, euro-zone countries should not run a budget deficit of over 3% of GDP. If this happens, they are expected to remedy the situation within a year. If they fail to do so, they will have to pay a fine of 0.5% of their GDP. However, slowing growth and stagnation in the euro-zone's biggest economies, i.e. Germany and France, have led to the pact being criticized. The main reason for the discontent is that it does not allow an economy to be stimulated using budget and tax policy methods. However, the pact cannot simply be annulled. The EU authorities turned a blind eye to Germany's and France's violations, and the two countries did not pay the due fines of about 12 billion euros.
Worse still, another four euro-zone countries are on the verge of violating the pact, and the pressure on France and Germany is mounting. They need money to reduce their budget deficits from 3.9% to 2.9%, and from 3.7% to 3% respectively.
In these circumstances, Russia's early debt settlement will be timely and will secure additional benefits for the country. First, Finance Minister Alexei Kudrin said $700-900 million a year would be saved on paying back interest, which would also facilitate debt servicing in the future. Second, creditors may well make concessions on the sum of the debt, considering their financial needs.
But most importantly, the Stabilization Fund will not be completely spent on dubious mega-projects, as money would be channeled toward debt servicing.
