Jeroen Dijsselbloem: ‘We have achieved a major breakthrough on Greece which enables us to enter a new phase’ © Bloomberg
Greece’s international creditors have bought time to secure the country’s financial future after agreeing broad but inexact principles to ease its debt mountain and break an impasse between Germany and the International Monetary Fund.
After almost 11 hours of talks in Brussels, eurozone finance ministers and the IMF agreed to a range of measures to restructure Greece’s debts when its €86bn bailout ends in 2018 — but put no figures on the concessions and left them subject to political decisions by eurozone countries. Most significant decisions would be taken after the German federal elections next year.
One of the debt relief options involves dramatically reducing the IMF’s exposure to the Greek programme by buying out up to €14.6bn of its loans. For now, the IMF said it would participate financially in the programme at some stage later this year — a crucial demand for Germany — but only if the eurozone committed to a scale of relief that meets the fund’s normal lending guidelines.
“We have achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme,” said Jeroen Dijsselbloem, president of the eurogroup.
While still a work in progress, the outline deal allows the eurozone to extend €10.3bn in rescue loans to keep Greece afloat this summer, beginning with a €7.5bn cash release next month. The loan is the first injection of bailout funds since the end of 2015 and is expected to see Greece through to at least October.
The measures will be the first time Athens will be afforded debt relief by its official-sector creditors since November 2012.
The package included short, medium and long-term debt relief aiming to ensure Athens’ debt financing costs do not exceed 15 per cent of national income until 2030, and 20 per cent after that.
Before 2018, the European Stability Mechanism, the eurozone’s bailout fund, will rearrange its loan book to Greece with the aim of smoothing its payment profile and reducing interest-rate risk.
A set of more ambitious measures are scheduled for 2018, if Greece completes its bailout programme. These include the return of €1.8bn of profits of Greek bonds held by the European Central Bank, possible extensions of maturities and, if necessary, the buyout of relatively expensive loans to Greece, either from the IMF or in the form of bilateral loans from member states.
All the options will be subject to political approval by the eurozone, meaning none of these measures automatically applies once Greece exits its programme — a longstanding demand of the IMF.
Poul Thomsen, the IMF’s Europe chief, said he had made an “important concession” during talks over the trigger for the debt relief. “We have all shown flexibility”.
“This is a very important moment in a long and sometimes difficult story”, said Pierre Moscovici, EU commissioner for economic affairs.
In the long term, creditors agreed on a “mechanism” to provide further long-term restructuring to keep its financing costs below 20 per cent of GDP by 2060 — a threshold demanded by the IMF to ensure debt sustainability.
The eurozone maintained its demand for Athens to hit a 3.5 per cent primary surplus by 2018, a target the IMF sees as overambitious and unachievable. However Mr Dijsselbloem said the target, which is a budget surplus not including debt payments, could be revised after 2018, suggesting some softening of the eurozone position.
Pressed on the vagueness of some of the debt-relief measures, Mr Dijsselbloem said the scale of relief would be “made to fit” whatever criteria were needed to ensure Greece’s long-term debt sustainability and the participation of the IMF.
The next stage of talks will centre on these debt sustainability calculations, which the IMF will publish before committing itself to Greece’s third international bailout.
Mr Thomsen insisted the agreement was not a “weakening” of the IMF’s bold debt relief proposals, which it had advocated just a day before talks began.
The fund had issued an explosive 23-page analysis calling for a 40-year extension on loans and moratorium on all payments until 2040, measures that would help reduce the net present value of Greece’s debt burden by 50 per cent over the next 44 years. But Mr Thomsen said “Europe can deliver the measures we are calling for”.
“These measures constitute a universe of measures that we think can deliver the necessary debt relief by the end of the period,” he said.
The proposals will be contingent on Greece carrying through with its promise of economic reforms, such as privatising state assets, reducing its pensions bill and overhauling its tax system.
“The language suggests creditors and the IMF have papered over cracks, but that this is going to require another revisit,” said Mujtaba Rahman at Eurasia Group.