Greece back from the brink after EU agrees debt deal
By Benjamin Fox
Debt-laden Greece was brought back from the brink on Tuesday (27 November) after eurozone finance ministers agreed changes to the country's bailout deal.
After another marathon, 13-hour-long meeting which broke up in the small hours of the morning, ministers signed off on a deal that could cut the country's debt mountain to 124 percent of GDP by 2020 and around 110 percent by 2022.
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Greece is on the verge of entering its sixth straight year of recession, with the country's economic output having contracted by a quarter since the start of the financial crisis in 2008.
Its debt burden, which stood at around 115 percent per cent in 2007 has since ballooned to around 190 percent - the highest in the EU by a large margin.
Under the new deal, which is estimated to be worth 20 percent of GDP, the maturity of bilateral loans from EU countries and the European Financial Stability Facility will be deferred for 15 years and interest payments by 10 years.
Greece will also get a 1 percent cut on the interest rate it is paying for loans from its first formal bailout package, while member states and the European Central Bank (ECB) will transfer the profits accrued from interest payments back to Greece.
The troika of lenders - which includes the European Commission, the ECB and the International Monetary Fund (IMF) - will also examine the viability of a debt buyback programme.
The main aim of the meeting had been to decide on the latest €34.4 billion tranche of bailout funding, with the Greek government warning that it would face a dire cash-flow crisis if it did not get the funds.
Two previous meetings had failed to reach a deal because of Germany's reluctance to consider a so-called official sector involvement - eurozone governments taking losses on their Greek loans. IMF chief Christine Lagarde had been pressing for OSI and refused to sign off on any deal that was not "credible". On Tuesday morning, a compromise was reached.
"When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt," German finance minister Wolfgang Schaeuble said. Under the troika projection, this could happen in 2016, when the Greek budget is expected to reach a surplus.
But economists are sceptical how long these calculations will last before being changed again. "The Greek deal is like a car made from junk yard parts that can collapse at the first bump in the road. It is a very fragile contraption," Sony Kapoor from Re-Define think tank wrote on his Twitter page.
The new deal is expected to be formally adopted by the Eurogroup of 17 finance ministers on December 13, and will depend on national parliaments agreeing to the package.
Luxembourg Prime Minister Jean Claude Juncker, who chairs the group, told reporters that the "very difficult deal" had been reached after "very significant efforts by each and every stakeholder."
He added that the agreement signified "the promise of a better future for the Greek people and for the euro area as a whole, a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum, declining debt rations and a return to growth."
For his part, French finance minister Pierre Moscovici agreed that the deal had required further concessions from Greece's EU creditor.
"Everyone has gone beyond their red lines," he said.
Meanwhile, Lagarde said she would be recommending the deal to the fund's executive board.
Praising the Greek government for "significant efforts" in forcing through a succession of structural reforms and budget cuts, she commented that the agreement would "help bring back Greece's debt ratio to a sustainable party and facilitate a gradual return to market financing."