After months of intense talks, Greece’s creditors reached an agreement on June 21 during a Eurogroup meeting in Luxembourg to provide Athens with much-needed debt relief and also signed off on a post-bailout monitoring arrangement and the conclusion of the final review of the country’s latest bailout programme.
The deal reached is the final hurdle for the completion of Greece’s third bailout programme and was seen as key to reversing the country’s fortunes and brining it back to a certain degree of economic prosperity after a debilitating decade-long economic crisis.
Greek Finance Minister Euclid Tsakalotos said after the marathon session with his counterparts, Germany’s Olaf Scholz and Bruno Le Maire of France, which lasted late into the night on June 22, that the extension of the repayment period of the second programme’s European Financial Stability Facility (EFSF) loans and the size of the final bailout tranche had been a sticking points in the talks
“After eight long years, Greece will finally be graduating from its financial assistance. Greece joins Ireland, Spain, Cyprus and my own country Portugal, in the ranks of Eurozone countries that turned around their economies and once again are standing on their own feet. Greece is a success story for programme implementation,” said Portuguese Finance Minister Mario Centeno, who also serves as the president of the 19-minister Eurogroup. “We have managed to deliver a soft landing of this long and difficult adjustment. There will be no follow-up programme for Greece.” Centeno added.
Tsakalotos said the debt relief deal makes Greece’s debt sustainable, allowing the country to return to debt markets. “I believe this is the end of the Greek crisis…it is a historic day”
The agreed medium-term relief measures are aimed at the €96.6 EFSF loans of the second bailout programme. The loans’ maturities extension will be accompanied by a 10-year grace period for interest and amortization payments.
The EU institutions agreed on a final disbursement of €15 billion, with €3.3 of which to be used for International Monetary Fund (IMF) and European Central Bank (ECB) repayments from Greece. Tsakalotos did not exclude an early repayment to the IMF, adding that Greece has no concrete plans of how the €24.1 billion overall cash buffer will be used.
According to Tsakalotos, this will be sufficient for at least 22 months while the country prepares to exit the markets. It will be sufficient for “at the very least 22 months and, depending on other assumptions and to what happens, it could be a bit longer than that,” he added, while being upbeat when assessing the overall framework of the agreement. “The debt is now viable, we can have access to the markets now and in a context of surveillance and by continuing our reforms we can pursue this”.
Greece’s primary surpluses is expected to be at 2.2% GDP from 2023 to 2060, according to Tsakalotos. The country will still have to sustain an higher primary surplus of 3.5% GDP until 2022 to continue to ensure that its fiscal commitments are in line with the EU’s fiscal framework. Tsakalotos believes this will be a challenge, calling it “a tough requirement”. The package, he said, was laid out on a “take it or leave it” basis and, for Greece, it had “to take the whole package” under the circumstances.
EU Commission welcomes the agreement
EU Commission President Jean-Claude Juncker, said after the deal was reached that the “Eurogroup agreement paves the way for a successful conclusion of the programme and a new chapter for the country (Greece). I will always fight for Greece to be at the heart of Europe. I pay tribute to the Greek people for their resilience and their commitment to Europe. Their efforts were not in vain”.
Draghi and Lagarde look to long-term sustainability
The President of the European Central Bank Mario Draghi also welcomed the deal, saying the agreement will improve the sustainability of Greece’s debt.
“We welcome the Eurogroup’s readiness to consider further debt measures in the long term in the event that adverse economic developments materialise,” Draghi said. “We believe that the adoption of the set of debt measures agreed by the Eurogroup will improve debt sustainability in the medium term.”
IMF Managing Director Christine Lagarde echoed Draghi saying she thought the mid-term measures were a positive step forward, but that the IMF still “has reservations” over the long-term.
The IMF had been waiting for debt relief measures from Greece’s European creditors before adding €1.6 billion to the Greek programme. Largarde pointed out that the agreement achieved falls short of what the IMF has set as necessary requirements to calm fears about Greece’s long-term solvency, particularly after the final stretch of negotiations over the third Greek bailout stretched out for as long as the did. The IMF now does not have enough time to approve the disbursement. “Time has clearly run out,” Lagarde said, but added that “the IMF will remain fully engaged in supporting Greece in sustaining its economic recovery and achieving more robust growth in the post-programme period.”
The IMF will begin assessing the sustainability of the Greek debt “as early as next week,” Lagarde said on the early hours of Friday, adding that the fund will remain engaged in Greece and will participate to the monitoring of the Greek economic performance and reforms after the end of the programme.
Other agreed debt measures include the return of some €4 billion in profits to Athens from the Eurozone central bank that was made on Greek bond holdings and the abolition of a €220 million annual penalty attached to the so-called “step-up loans”. The measures are interlinked with Greece’s need to fundamentally reform its financial and fiscal structure, social welfare, financial stability, labour and product markets, and public administration.