Greece gets short-term debt relief from eurozone

Associated Press

BRUSSELS — Greece won some short-term debt relief from European creditors on Monday even though it failed to clear the latest hurdle in its bailout program that has prevented the country going bankrupt and crashing out of the euro.

At a meeting of the 19 eurozone finance ministers in Brussels that was largely overshadowed by the Italian referendum result that forced Premier Matteo Renzi to offer his resignation, Greece’s creditors offered some immediate help to the cash-strapped Greek government.

Among the measures offered were a smoothing of some of Greece’s repayment profile in order to prevent debt repayment humps on the way and a waiving of an interest rate increase that was due to take effect next year.

The measures have been seized upon by the Greece’s left-wing government, which has been losing support according to opinion polls, as evidence that it’s getting something in return for all the tough economic medicine that it’s been making the country take.

“The eurogroup decision for the immediate implementation of short-term measures for the adjustment of Greek debt represents a considerable success and another decisive step for the Greek economy toward exiting the crisis,” said Greek Prime Minister Alexis Tsipras.

In return for successfully enacting a wide-ranging package of economic reforms and budgetary restraints, Greece’s creditors have promised to offer some debt relief measures for both the short and long term.

“They are much more ambitious measures than we expected in May or hoped for, so that’s very promising,” said Greek Finance Minister Euclid Tsakalotos. “This will start helping the Greek economy all at once.”

According to Klaus Regling, the head of the European Stability Mechanism, the body that releases the bailout funds to Greece, Monday’s package of measures will reduce Greece’s debt burden by around 20 percentage points by 2060. Tsipras said the reduction could amount to some 45 billion euros.

Though conceding there’s a large amount of uncertainty around that prediction given the timescale involved, Regling said the benefits to Greece were “clear” and would help make Greek debt sustainable.

Though successive Greek governments have slashed spending and raised taxes, Greece is still lumbered by debt of more than 175 percent of annual GDP because its economy has shrunk by a quarter.

That’s far more than any other eurozone country and a level that the IMF — and the Greek government — consider unsustainable. It would take Greece decades of economic growth to get debt down to more manageable levels around 100 percent of GDP.

The Greek government is looking for much more help over the years ahead from its creditors so it will be able to stand on its own feet, but it still has further hurdles to clear before longer-term assistance is offered — perhaps in the form of longer repayment timetable for Greece’s loans or further reductions in the interest rates payable on those loans.

Jeroen Dijsselbloem, the eurozone’s top official, said Monday that longer-term help for Athens will not be offered until mid-2018 when Greece’s current bailout program is due to end.

Under the terms of the bailout, which could see up to 86 billion euros ($91 billion) in loans over three years, the Greek government promised a series of economic reforms and budget cuts.

To get there, Greece needs to secure successful reviews of its adherence to the bailout program in stages. Tsakalotos was hoping that he would secure a successful review of the second stage of the program at Monday’s meeting but conceded that there were still three or four issues that needed to be resolved.

These include agreement on upcoming budget surplus targets for Greece, discussions on longer-term debt relief measures and getting Greek bonds one step nearer to being eligible to be bought by the European Central BankBeing part of that stimulus program could help reduce the interest rates that Greece has to pay when it hopes to start tapping bond markets again from 2018.

Greece has for the past six years relied on bailout loans — totaling around 300 billion euros — from eurozone partners and the International Monetary Fund to avoid bankruptcy.

The IMF, which has yet to commit to Greece’s third bailout program, has argued strongly in favor of a big debt relief package for Greece and has suggested that the forecasts used in the Greek bailout plan are too rosy.

The IMF has said it will only get involved once Greece concludes a successful review of the current phase of its bailout. Dijsselbloem said that a deal this year is unlikely.

Amid signs of disagreement over Greece between the IMF and the eurozone, Tsakalotos urged all involved not to “jeopardize” the progress that is being made with “increased uncertainty.”

Germany in particular, has been hesitant to deliver anything substantial on Greece until it has delivered the reforms.

“What I think is realistic on Greece is that they will manage to be competitive at some point if they carry through the necessary reforms,” said Wolfgang Schaeuble, Germany’s finance minister. “It’s about that and absolutely nothing else.”

Worries over Greece may have eased in recent months but the country still has the potential to be the biggest problem for the long-run survival of the euro — even more so than Italy, the country at the heart of current concerns.

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Geir Moulson in Berlin contributed to this report.