Al Jazeera — Eurozone ministers struck a long delayed bailout deal with Greece to unlock rescue cash to pay themselves and avoid a Greek default, but warned Athens would have to wait for debt relief.
Payment of the latest tranche of Greece’s 86-billion euro has been held up for months by a row between Germany and the IMF over Greece’s debt relief.
“I am pleased to announce we have achieved an agreement on all elements,” Eurogroup head Jeroen Dijsselbloem said after the talks reached a conclusion earlier than had been anticipated.
In terms of debt relief, the Eurozone made two concrete concessions. First, it promises to link Greece’s rate of debt repayment to its rate of growth. The better the economy does in a given year, the more Greece will pay back. The corollary is that if Greece has little or no growth, it ought to receive a reprieve from creditors. This was a key demand of former finance minister Yanis Varoufakis in 2015, who claimed that a depressed economy could not reasonably be squeezed for debt repayment.
Second, the Eurogroup agreed to defer and extend repayment of Greece’s second bailout loan by up to 15 years. This loan, which ran from 2012 to 2015, was Greece’s largest and €130bn of it is still outstanding. That amounts to almost half of the entire debt.
These two measures will be put into effect between now and the end of the programme, but the Eurogroup will specify further debt relief measures to take effect after the summer of 2018. It has to specify these by July 27, in order for the IMF to become a participant in the third bailout.
The extension of Greece’s second bailout loan is something the IMF had recommended in late 2015, and the implication is that it expects the Eurozone to follow its other recommendations as well – such as an extension of Greece’s first (2010) bailout loan, now worth €53bn and a fixed, low interest rate of not more than 1.5 percent until 2060.
The main reason for announcing debt relief a year before the end of the programme is to encourage investors to return to the country. As of Thursday night, it was still unclear whether the Eurogroup’s statements were going to achieve that goal.
The IMF, which took part in Greece’s two first bailouts, has long insisted that more debt relief was a necessary step to put the economy back on track.
But Berlin, Greece’s sternest critic and biggest lender, has resisted any fresh commitment to debt relief, saying Athens did not need it and must continue reforms.
In an unexpected turnaround, the IMF’s Lagarde agreed this month to join Greece’s massive bailout while putting off the debt question until later.
The IMF compromise was a shock for the Greek government as it suddenly lost a major backer of debt relief.
“We have been as constructive as possible while still respecting our principles because we are committing money from the international community,” Lagarde, a former French finance minister, said in defence of the fund.
The IMF had insisted repeatedly that Greece’s debt is not sustainable, and that the country would require significant debt relief from Europe before the fund could approve a new loan programme.
“Nobody claims that this is the best solution,” said IMF chief Christine Lagarde, who attended the Eurogroup session. “That would have been a final approval on debt relief so that there would be clarity. This is second best.”
The Eurogroup praised Greece for legislating all 140 prior actions required to pass its second review under the programme – specifically in terms of tax increases, pension cuts and labour market reform, all of which are demanded but the lenders ostensibly to make its economy more competitive.
On Wednesday, Greek economy minister Dimitris Papadimitriou took aim at the powerful German Finance Minister Wolfgang Schaeuble in an interview with the Die Welt newspaper.
“For eight years we have been following the creditors’ demands, but the progress is slowed down by the fact that new conditions are constantly being raised,” he said. “Wolfgang Schaeuble also said that we had met the requirements. But then he changed his mind. You ask yourself ‘what is behind it?’ I have not yet met Schaeuble, and I do not want to be rude, but his behavior seems to me dishonest.”
Prime Minister Alexis Tsipras published an op-ed in Die Welt and Le Monde on the same day.
“For the French, the Germans or the Italians, the Greek debt is just a newspaper headline. For my fellow-citizens it is a source of daily concern as they try to change their country, to stand on their feet, to create businesses that will bring back jobs and growth.”
“The answer to the question of Greek debt sustainability is growth,” he said. “For that to happen, the debt has to be rescheduled so the economy can breathe and markets can restore their confidence.”
The Greek economy was forecast to grow by 2.7 percent this year, but the Hellenic Statistical Authority reports that it Grew by just 0.4 percent in the first quarter.
The Federation of Greek Industry today reports 53.6 unemployed people for every job vacancy.