Greek bailout exit takes shape

With 154 votes against 144, the Greek parliament adopted the 88 so-call 'prior actions' that constitute the fourth and last review of the bailout programme agreed in 2015.

But to turn the page on the whole programme, which ends on 20 August, and allow Greece to live on its own after three bailout since 2010, more talks are going on between Athens, Brussels and Washington ahead of a Eurogroup meeting in Luxembourg next Thursday (21 June).

In addition to closing the review, eurozone finance ministers and the creditors will try to agree on an overall package that will include a set of debt relief measures and a new mechanism to monitor Greece's economy.

"There will be a deal," an EU official said, but added that "it will need ministers to look each other in the eyes and say they are ready to make big concessions."

After Thursday's vote in Athens, Greece creditors will most likely agree on the last disbursement of the programme.

The packaged approved by the parliament include new reforms in the health sector, the labour market and public administration, as well as measures to reduce the amount of bad loans in banks, improve the business environment and restructure the energy market.

Cash buffer

The loan is expected to be at least €11-12bn, with an additional amount to create a cash buffer, up to €20bn, that will allow Greece to cover its financial needs until at least the end of 2019.

But the main issue on the Eurogroup's table will be a long standing discussion on debt relief, which has pitted the EU agains the IMF since the start of the current bailout in 2015.

"Everyone has an interest to alleviating the burden, for Greece and the rest of creditors," noted Olivier Bailli, the head of cabinet of EU finance commissioner Pierre Moscovici.

"If we leave too much burden, this will slow down Greece's recovery," he said.

The debt measures to be agreed next week, according to EU officials, could include a extension of maturities - the delay on repaying loans - as well as a buyout by the ESM of previous loans from the IMF and EU.

They could also include returning to Greece profits made by EU states on previous loans to Greece. The money, around €4bn a year until 2022, could be paid to Greece in several tranches, under the condition that Greece continues to implement the reforms, and would be used to repay its debt.

Compromise with the IMF

Another point of the discussion is the so-called growth adjustment mechanism, also called the French mechanism, because it was proposed by French finance minister Bruno Le Maire last year. Under the scheme, Greece's repayments would be bigger when growth is stronger, and smaller when growth is weaker.

Until now, the main obstacle to an agreement on Greece's debt was the IMF.

The Washington-based fund, which lent money to Greece in the two first bailouts, has not financially participated in the current bailout but has remained as an expert institution at the request of several member states, including Germany.

Since 2015, the IMF has said that it would participate only if Greece's debt was made sustainable by relief measures or more budget cuts. But EU countries, mainly Germany, have been resisting the IMF's call.

After a first agreement in principle two years ago about debt relief measures to be taken at the end of the programme, the IMF agreed last year to a $2bn loan (€1.7bn) once specific debt relief measures have been defined.

But now, two months before the end of the programme, time would be too short for the IMF to go through the disbursement procedure in case of agreement.

Under the compromise that is expected in Luxembourg next week, the fund would not give money to Greece but would recognise that the measures agreed make the Greek debt sustainable.

Pressure on Germany

"What is important is that the IMF give its view on debt measures. What the markets expect is that it says they are credible enough," Bailli said, admitting that "this put pressure on Germany".

In the future, the IMF would monitor Greece's economy through its standard procedures. For its part, the EU would trigger the so-called 'enhanced surveillance', a mechanism introduced in 2013 that has not been used yet.

Under enhanced surveillance, which would start on the day the bailout ends, 20 August, the European Commission would send regular missions to Athens and would report on economic policies.

The mechanism entails no sanctions. But for the ministers, as well as for the creditors and the financial markets, the main objective of the package under discussion is that the mix of debt relief and surveillance ensures that Greece will not backtrack on the reforms and will maintain a sustainable growth.

"It's very important that Greece can stand on its own feet," said Hans Vijlbrief, the head of the Eurogroup working group, the body that prepares the meeting. "If it's not credible, we won't come out. This is the first condition."