Greece’s debt crisis returns

Greek Prime Minister Alexis Tsipras unexpectedly on Wednesday demanded a European summit to bridge sudden rifts that emerged in negotiations over Greece’s massive bailout, its third in six years. After nearly a year of relative calm, Tsipras is angered by a fresh set of reforms demanded by Greece’s creditors that he says breaks the terms of its 86-billion-euro ($90 billion) bailout, agreed in July 2015.
But Athens needs to complete the so-called first review of its bailout soon to unlock funds so that it can meet a huge European Central Bank payment this July — a virtual repeat of last summer’s drama.
Here are key facts about the roller-coaster bailout crisis.
– GOOD START –
Until this week’s sudden setback, negotiations between Greece and its creditors progressed far more amiably than what seemed possible after six months of bitter talks that led up to the bailout deal of July 13, 2015.
Greece verged dangerously near a humiliating eviction from the euro single currency, but in the end eurozone leaders agreed to again save Athens.
Since then, Greece has received 26 billion euros from the bailout after delivering on reforms largely to the satisfaction of its creditors.
– EXTRA MEASURES –
The new stumbling block arose from a row over economic data between the two main overseers of the bailout: the European Commission, the EU’s executive arm, and the International Monetary of Fund.
The squabble delayed the completion of the bailout’s first review, which was originally planned for last autumn and remains unfinished.
Once the review is passed, Greece unlocks about 5.4 billion euros ($6 billion) in more loans — and crucially, wins negotiations on debt relief.
To complete the review, Greek reforms must be forecast to deliver a government budget surplus in 2018 of 3.5 percent of the economy’s annual output, not counting the cost of borrowing.
The EU believes the reform commitments on the table pretty much deliver on that promise, but the IMF says they fall far short and is demanding Athens deliver more reforms, especially on pensions.
To resolve the fight, the two institutions agreed to demand so-called contingency measures from Greece to bridge the difference.
These are pre-agreed reforms that will only kick-in if the IMF’s more bleak assessment should prove the right one.
Athens was caught by surprise with the demand and Prime Minister Alexis Tsipras asked EU President Donald Tusk for a eurozone summit to resolve the issue, though his request is for now denied.
– DEBT RELIEF –
In one of the few concessions handed to Greece last summer, eurozone leaders agreed to discuss ways of easing Greece’s debt burden “if necessary” once key reform pledges were met.
Debt relief is also a key demand of the IMF.
Eurogroup chief Jeroen Dijsselbloem on Friday said the contingency reforms were a condition to trigger debt relief negotiations.
Greece’s debt stood at 177 percent of gross domestic product (GDP) in 2015 — almost twice the country’s entire economic output in one year.
IMF chief Christine Lagarde called the issue “crucially important”.
But German Finance Minister Wolfgang Schaueble, the eurozone’s most influential official, has publically repeated that no debt relief for Athens is necessary.
Luckily for Athens, however, Schaueble also wants the IMF to remain on board in the bailout, as Berlin does not trust the commission to manage the programme alone.
– DEADLINES –
As ever with the Greek debt crisis, debt deadlines are key to developments.
The crisis last summer reached its climax when Athens defaulted on the IMF, the first developed country in history to do so.
This year all eyes are on July 20, when Greece must repay about 2.3 billion euros to the European Central Bank.
But Klaus Regling, the head of the European Stability Mechanism that manages Greece’s bailout payments, warned on Friday that the “liquidity situation is becoming tight” in Athens.