Eurozone ministers reached a vital deal with Greece Wednesday to unlock bailout cash and start tackling the country’s debt mountain as demanded by the IMF, but analysts warned details are sketchy, spelling trouble further down the road.
The agreement unlocks 10.3 billion euros ($12 billion) in bailout cash that Greece urgently needs to repay big loans to the European Central Bank (ECB) and International Monetary Fund (IMF) in July, having already fallen behind in paying for everyday government duties and wages.
The US-based IMF has made easing Greece’s huge debt burden a condition for its continued participation in the bailout programme, despite opposition from Germany to giving Athens more favours.
The 19 ministers from the countries that use the euro met two days after Greek lawmakers passed yet another round of spending cuts and tax hikes demanded by its creditors.
After hammering out a deal at late-night talks in Brussels, Eurogroup chief and Dutch Finance Minister Jeroen Dijsselbloem said the ministers had achieved a “major breakthrough”.
The bailout rewards Athens for meeting the terms of its 86-billion-euro bailout programme agreed last July.
Greece’s creditors will pay a first 7.5-billion tranche in June and the rest in a series of later disbursements.
Greek government bonds soared in response to the deal, pushing the yield on the benchmark 10-year bond to below 7 percent for the first time since November.
The Athens stock market also firmed, rising 0.8 percent in early Wednesday business.
– ‘Kicking the can down the road’ –
The hardest part of the talks was defusing the row between Greece’s creditors, the eurozone governments and the IMF, over the state of the Greek economy and debt relief.
“The Eurogroup agreed today on a package of debt measures which will be phased in progressively,” said Dijsselbloem, adding he was “glad to confirm” the IMF would now stay on board.
But analysts, pointing to a lack of detail on such a deal, said negotiators had simply postponed thorny discussions.
“The Greeks have got the next instalment of their funding, and in a spectacularly sophisticated show of kicking the can down the road debt relief will be considered — later,” said Paul Donovan, an economist at UBS. “With nothing so vulgar as amounts of money being discussed,” he noted.
One eurozone official candidly confirmed that this reading was accurate.
“Yes we did kick the can down the road,” the official said.
IMF staff on the ground had trouble getting agreement from the Fund’s management on the compromise deal, “at one point” even failing to get IMF chief Christine Lagarde on the phone.
In a brutal report on the eve of the Eurogroup meeting, the IMF had warned that Greek public debt at the current level of about 180 percent of gross domestic product was unsustainable and must be reduced.
The IMF added that, without restructuring, the debt load could soar to as much as 250 percent of output by 2060.
IMF European Director Poul Thomsen said the lender had made “concessions” but said that it would take part in the programme “provided that the debt sustainability measures make the debt sustainable”.
“We welcome that it is now recognised by all stakeholders that Greek debt is unsustainable,” Thomsen said in a rare public appearance in Brussels.
Germany claims there is no need to alleviate Greek debt for now.
But fortunately for Athens, Germany also wants the pro-reform IMF to remain in the bailout.
Dijsselbloem said it had been a difficult political agreement. “This is stretching what I would have believed possible a short time ago,” he said.
Athens welcomed the deal, with a government source saying that it guaranteed “the financing of the economy in very favourable conditions and for a long time”.
A future agreement on debt relief would allow Athens to return to the sovereign debt market next year, the source said.
The Brussels agreement came after Greek lawmakers narrowly adopted another batch of controversial reform commitments.
The measures included the establishment of a new privatisation fund that will manage Greece’s public assets independently from state meddling.
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