Greece gets enough to avoid another bailout trauma
Posted June 15
LUXEMBOURG — Greece avoided another potential brush with bankruptcy after striking a deal Thursday with European creditors to tide it over for the rest of the year and gained assurances that its repayment burden will be eased when it finally can stand on its own after nearly a decade on financial life support.
After months of haggling that raised fears of another escalation in Greece's near 8-year debt crisis, the 19-country eurozone cleared the release of a further 8.5 billion euros ($9.5 billion) after the Greek government delivered on an array of reforms. Getting the money was becoming increasingly urgent as Greece has a big repayment hump next month.
Perhaps more importantly for the longer-term, the so-called Eurogroup made clear that it is ready to ease the burden of Greece's debt repayments at the conclusion of the current bailout program next year. The International Monetary Fund may also get involved financially, on a limited basis of up to $2 billion.
"Overall, I think this is a major step forward," said Jeroen Dijsselbloem, the eurozone's top official. "We are now going into the last year of the financial support program for Greece; we will prepare an exit strategy going forward to enable Greece to stand on its own feet again over the course of next year."
He singled out the Greek people for their "intense efforts and resolve" over the past few years of the country's bailout era when successive governments had to enact drastic spending cuts and tax increases in return for the money needed to avoid bankruptcy and a possible exit from the euro currency.
The left-led Greek government, which has lost a lot of support since signing up for the country's third bailout even after campaigning against austerity, hopes Thursday's deal will help it get to a position to tap the international bond markets that lost faith in 2010 and forced Greece to rely on rescue money.
"We feel that after this Eurogroup (agreement) there is a much greater clarity for both the Greek people and for financial markets," Greek Finance Minister Euclid Tsakalotos said.
There is now "light at the end of the tunnel," he said.
The office of Prime Minister Alexis Tsipras said in a statement that the decision sends markets a positive message.
"The main point of today's decision is that — for the first time — there is a clear Eurogroup commitment to support Greece's market access and the successful completion of the program, with the creation of a significant liquidity reserve to back the country's market access," it said.
Among the measures offered to Greece was a possible 15-year extension in debt and interest payments due European creditors. Also, following a recommendation from the new French government of President Emmanuel Macron, the possibility was raised of linking Greek repayments to growth, which could mean debt repayments being postponed in the event of an adverse shock.
In return for these assurance, Greece's government will have to continue with strict budgetary discipline beyond the end of its bailout program, including running a budget surplus after debt and interest payments of 3.5 percent of GDP through 2022 and then around 2 percent until 2060.
While conceding that Greece didn't get everything it wanted, Tsakalotos said the country could now turn the page on its bailout era.
"We recognize that we did not want the perfect to be the enemy of the good," he said. "And we also recognize that all sides have tried to give and compromise to some extent."
Under the terms of its 2015 bailout, Greece's European creditors had promised to provide cash and find a way to lighten the country's long-term debt load — as long as the government kept a lid on spending and deeply reformed the Greek economy.
Despite years of austerity since Greece was first bailed out in 2010, the country's debt burden still stands at about 320 billion euros, or around 180 percent of Greece's annual gross domestic product. That's largely because the Greek economy has contracted around 25 percent, meaning a worsening in the debt load even as the government's budget improved markedly.
An outright cut in Greece's debt is not allowed under euro rules, but the length of time the country has in paying back its debts can be extended, and the interest rates on those debts can be cut.
For Greece, Thursday's agreement should limit the amount it has to pay out in debt servicing each year, freeing up money it can use to help the Greek economy and society. More comprehensive details should emerge in the coming months.
One of the reasons why Greece's bailout program stalled over the past few months was a disagreement on debt relief between the eurozone and the IMF, which contributed financially to Greece's first two bailouts but not the third. Before deciding whether to participate in the latest deal, the IMF has wanted more information about what debt relief Greece may get, to see if the debt burden will be sustainable in the long run.
Thursday's compromise shows the disagreement has yet to be fully bridged.
However, Christine Lagarde, the IMF's managing director, said enough progress was made at Thursday's meeting for her to go to the IMF executive board in Washington to get the stand-by facility of less than $2 billion.
"I think there is a very strong focus on growth and that's a strong change of attitude and tone," she said.
For austerity-weary Greeks, the latest deal is unlikely to mean much change any time soon.
On Thursday, more than 2,000 older Greeks marched through Athens to demonstrate against cuts to monthly pensions.
"We can't live on 300 euros!" they chanted, with some waving sticks.
Associated Press writer Ioanna Spanou in Athens contributed to this report.