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22nd Jan 2022

EU backs Greek bailout, first money due Thursday

  • Dijsselbloem (c) praised the Greek government for 'normalising' relations with EU institutions (Photo: consillium)

Euro countries have agreed to lend Greece up to €86 billion more to keep it in the single currency, with the first tranche, of €23 billion, to be transferred next Thursday (20 August).

The agreement was clinched at a meeting of euro finance ministers in Brussels on Friday (14 August).

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Jeroen Dijsselbloem, who chaired the event, told press that if Athens implements required reforms it will “allow Greece to return to sustainable growth”.

European Commission president Jean-Claude Juncker said: “The message of today's Eurogroup is loud and clear: On this basis, Greece is, and will irreversibly remain, a member of the euro area”.

Valdis Dombrovskis, his economic affairs commissioner, called the deal “solid and comprehensive … fair”.

"Today's agreement will lift the uncertainty that has hung over the country and the euro area for too long”.

The money is to come in the form of low-interest loans from the European Stability Mechanism (ESM), the EU’s Luxembourg-based crisis fund, which has up to €455 billion in its coffers.

ESM chief Klaus Regling noted, in Brussels, that he expects the International Monetary Fund (IMF) to join the programme in autumn, reducing the ESM’s full share of the burden.

He also said he expects income from Greek privatisations to reduce the burden further.

"Greece is the only euro area country which hasn't turned the page on the crisis", he noted.

Toxic debate

The accord comes after Greek MPs, following a toxic debate on Thursday, voted through a tough package of reforms, dubbed “prior actions”.

It also comes despite German reservations, with Berlin having signalled earlier in the day the reform package was not quite tough enough.

The Bundestag still has to vote on the deal.

But the ESM board expects to rubber-stamp the final agreement at a meeting next Wednesday, enabling it to pay out €23 billion the next morning, in time for Greece to repay a loan to the European Central Bank (ECB).

It also aims to disburse a €3 billion in September or October.

Part of the €26 billion loan will be used to create a €10 billion “reserve fund”, which can be tapped by Greek banks if they get into trouble in the short term.

With Greece having been forced to impose capital controls to stem a potential bank run, Dijsselbloem underlined that Greek savers will not be forced to “bail-in” - contribute money - to the rescue package.

“We wanted to make sure there is no unrest among depositors”, he said.

Among a laundry list of measures demanded from Greece, its banks will face “stress tests” in autumn, before receiving recapitalisation money.

The ownership of recapitalised banks will then be transferred to a new Greek privatisation fund, which is to be co-managed by the commission, the ECB, and the IMF.

The arrangement means the return to Greece of what used to be called the “troika” of EU and IMF monitors - a hated institution which Greek PM Alexis Tsipras had pledged to abolish.

Political uncertainty

Despite the Greek Yes vote on Friday, Tsipras faces a rebellion by the left wing of his party, auguring potential political instability.

But Dijsselbloem, Regling, and Dombrovsksis praised the Greek PM in glowing terms.

Dijsselbloem said the Greek government has become “very serious” in the way it is now managing the crisis and in the way it has “normalised” its working relationship with creditors.

He declined to speculate whether Greece will need long-term debt relief or further bailouts before it gets back on its feet.

He also said he’s happy that, despite the Syriza rebellion, the bailout conditions have a “broad majority from a broad range of parties [in Greece] … from the right, from the moderate left, and from the centre”.

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