25th Mar 2018

Eurozone, IMF find minimum deal on Greek debt

  • IMF director Christine Lagarde promised a $2-billion loan that will disburse when specific debt relief measures are defined. (Photo: Council of the EU)

Greece and its creditors managed, on Thursday (15 June), to keep the country's bailout on track while postponing decisions on debt relief.

At a Eurogroup meeting in Luxembourg, eurozone finance ministers agreed on the disbursement of an €8.5-billion loan after Greece completed all requirements to close the second review of the programme agreed in 2015.

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  • "There is light at the end of the tunnel," said Greek minister Tsakalotos (center), who "particularly" thanked France's Bruno Le Maire (second left). (Photo: Council of the EU)

The money will be disbursed by the European Stability Mechanism (ESM), the eurozone emergency fund, in early July.

A first part of €6.9 billion will be used to repay previous loans in July, while a second part of €800 million will cover clearance of arrears by the Greek state.

The remaining €800 million will be handed to Greece after the summer for other arrears payments, under the condition that Greece also adds some money to this sum.

The agreement was expected after Greece had adopted tax and pensions reforms to cut spending by 2 percent after 2018, when the bailout ends.

But it was also dependent on another agreement, this time with the International Monetary Fund (IMF), over debt relief in the medium and long-term.

The IMF, which can remain in the bailout programme only if it deems Greek debt to be sustainable, pushed for relief measures. It was opposed by countries like Germany, but even these said that the programme could not continue without the IMF.

The Eurogroup and the IMF director Christine Lagarde found a compromise on Thursday in which the IMF promised a $2-billion loan (€1.8 billion) that it will be disbursed when specific debt relief measures have been defined.

The debt measures themselves would be implemented at the end of the bailout.

"It is the second best solution. It is not a bad solution," Lagarde said after the meeting.

"The crisis that we would otherwise have had mid-July, had this not happened, is avoided. So stability is maintained," she said, referring to the debt instalments that Greece would not have been able to pay without an agreement.

She said that the agreement "preserves the major reform effort" made by Greece, and "the sacrifices made by the Greek people".

Under Thursday's agreement, before the end of July the IMF will approve the loan "in principle", which is being called a precautionary stand-by arrangement.

'Enough clarity'

At the last Eurogroup in May, Greece had rejected a first proposal that it said didn't give "enough clarity".

On Thursday, Greek finance minister Euclid Tsakalotos said that he felt there was now "much greater clarity for both the Greek people and the financial markets"

"There is light at the end of the tunnel," he said.

He admitted that there was "not as much clarity as the Greek people deserve", but added that Greece did "not want the perfect to be the enemy of the good".

The agreed solution falls short of what the Greek government, which is faced with growing domestic opposition over the measures passed to meet the creditors' demands, had expected.

"Medium-term measures must be granted now, without ambiguity," Greek prime minister Alexis Tsipras wrote earlier this week in an article published in Germany's Die Welt and France's Le Monde.

Lagarde said on Thursday that the €320-billion Greek debt - 180 percent of the country's GDP - was not sustainable, and that Europeans will have to come up with more detailed proposals for relief in the coming months.

'Pragmatic and supple'

Eurogroup president Jeroen Dijsselbloem said that eurozone ministers were "ready to consider" a new extension of maturities, the delay before which loans have to be repaid, as well as more technical measures on interest rates.

Another measure was also proposed by the new French finance minister Bruno Le Maire - to link Greek debt repayments to the country's growth.

"If growth is better than expected, Greece will be able to accelerate its repayments. If growth is weaker than expected, Greece will be able to slow down its repayments," he explained.

"This is pragmatic, supple, and that is why it will work," Le Maire told journalists.

The French proposal was crucial in unblocking the discussions between Europeans - especially Germany - and the IMF.

"It was a compromise factor," Le Maire said, who was also "particularly" thanked by Tsakalotos.

After last month's Eurogroup meeting, Le Maire had admitted that France and Germany were not on the same page.

On Thursday, he said that he had had "long discussions" with his German counterpart, Wolfgang Schaeuble, and that the meeting's outcome was due to the "good understanding" between the two countries.


A positive agreement for Greece

The outcome of the Eurogroup meeting this week leaves a positive footprint, setting the basis for the Greek economy to exit the vicious circle of austerity and debt.

Greece to get €7.7bn loan next week

The ESM, the eurozone emergency fund, agreed on Friday to unblock a new tranche of aid as part of the bailout programme agreed upon in 2015.


Greece needs a new plan

Two years into its third bailout, Greece needs to combine the necessary fiscal targets with a new vision. This can be done in the context of the ongoing industrial revolution.

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