The Eurogroup discussion on Greece’s program review and debt issue concluded with an agreement in principle early on Wednesday morning.
Eurogroup ministers gave a nod to releasing 10.3 billion euros (£8 billion) in new funds for Greece in recognition of painful fiscal reforms pushed through by Prime Minister Alexis Tsipras’s leftist-led coalition, subject to some final technical tweaks.
But a bigger step forward was a deal by which the euro zone agreed to offer Athens debt relief in 2018 if that is necessary to meet agreed criteria on its payments burden. That was enough to secure an agreement from the International Monetary Fund to again join the euro zone in funding the bailout of Greece.
“We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme,” Eurogroup President Jeroen Dijsselbloem, the Dutch finance minister, told a news conference. “This is stretching what I thought would have been possible not so long ago.”
Acknowledging the “political capital” European ministers invested to reach the deal — a nod to strong German objections to debt relief — Dijsselbloem called it a “new phase” in a six-year drama to stabilise Greece’s finances that has taken the 16-year-old euro zone to the brink of break-up.
Mutual trust was returning to the talks, he said, nearly a year after Tsipras’s rejection of austerity measures pushed Athens close to be pushed out of the euro.
“I think there is some ground for optimism that this can be the beginning of turning Greece’s vicious circle of recession-measures-recession into one where investors have a clear runway to invest in Greece,” Tsipras’s finance minister, Euclid Tsakalotos, told reporters as he left the Brussels meeting.
The IMF has long insisted on the European governments taking a hit to relieve Athens of some of its debt in order to make its public finances more sustainable. The refusal of Germany and others to do that had led to months of wrangling with the IMF in which Athens had been something of a spectator in negotiations.
While the Europeans did not offer immediate debt relief, or make an unconditional promise of reducing the payments Greece must make to them, they did spell out criteria for it. Athens’ gross financing needs show be kept below 15 percent of GDP in the medium term and below 20 percent beyond that.
“The Eurogroup agreed today on a package of debt measures which will be phased in progressively, as necessary to meet the agreed benchmark on gross financing needs,” a statement said.
IMF on board
The IMF’s European director Poul Thomsen said he believed the measures would “deliver the necessary debt relief”, though he cautioned that it was still up to the IMF board in Washington to determine whether to agree with his assessment. The extent of debt relief that would take place was still not clear, he said.
“It will deliver debt sustainability according to our standard criteria,” Thomsen said, insisting that the IMF had not eased its insistence that it would lend more to Athens unless its European creditors ease its debt burden. “I do not see this as a weakening of the debt relief proposals,” he said.
But he acknowledged that the Fund made a big concession by agreeing that the debt relief would only be finally decided in 2018, rather than up-front, as was the IMF’s initial position.
The easing of Greece’s debts could be achieved by various methods, including extending some maturities, the euro zone agreed — not through a ‘haircut’ on the nominal debt.
Germany has been insistent that the IMF should take part in the bailout because the Fund’s reputation for fiscal rigour, but it has also resisted demands from Washington for debt relief — a move that Berlin fears would create a “moral hazard”, giving euro zone debtors an incentive to break with austerity reforms.
Hardline Slovak Finance Minister Peter Kazimir, who has long been sceptical of help for Greece, said: “It was a complicated birth tonight. It’s probably about as good as it gets.”
Socialist French Finance Minister Michel Sapin heaped praise on Tsipras for pushing painful reforms through parliament in order to unlock a first tranche of new money worth 7.5 billion euros next month, with another 2.8 billion to come.
“Even if the discussions were long, the atmosphere was always extremely relaxed,” he said. “This deal is first and foremost a declaration of confidence in today’s Greece.”
Before the meeting, Finance Minister Wolfgang Schaeuble told reporters he was not willing to commit to any action after next year, when Germany holds parliamentary elections in the autumn.