As expected, the meeting saw eurozone finance ministers confirm that the raft of harsh austerity measures passed by Greece over the last month were sufficient to unlock the second tranche of Greece’s third €86bn bailout package, which will keep the country afloat over the summer.
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The first review of the €86 billion bailout had initially been scheduled to finish last October but has been beset by delays as creditors demanded more reforms from Athens.
On Sunday, the Hellenic Parliament approved a bill aiming to satisfy creditor demands ahead of the Eurogroup meeting, adopting a contingency mechanism that allows the government to slash spending further if needed, as demanded by the Eurogroup.
But the hardest part of the talks will be the effort to diffuse the row between Greece’s creditors, the eurozone governments and the International Monetary Fund, over the state of the Greek economy and debt relief.
“The good news is that the amount that the creditors are likely to give Greece before July means that Greece will be able to pay bonds that mature in July and there will be no default”, said BNP Paribas rate strategist Patrick Jacq.
Eurogroup President Jeroen Dijsselbloem confirmed that an agreement has been reached to greenlight €10.3billion ($11.5bn) in bailout loans to Greece.
Five years after handing Greece the biggest sovereign-debt write-off in history, European policymakers have come full circle to the point they had all hoped to avoid: a real discussion on debt relief.
The accord is an “important moment” for Greece and may pave the way for the nation to end its cycle of recession and austerity, Greek Finance Minister Euclid Tsakalotos said.
The IMF called Greece’s debt burden unsustainable with a debt/GDP ratio of close to 180% and has called for debt relief to bring the debt down to a sustainable level.
Almost all of the austerity conditions that Greece had to meet to get its hands on the next loan have been delivered, paving the way for finance ministers to approve the release of the latest aid installment.
In a brutal report on the eve of the Eurogroup meeting, the International Monetary Fund had warned that Greek public debt at the current level of about 180 per cent of gross domestic product was unsustainable and must be reduced.
In a significant development, the group of euro zone finance ministers also set out a series of measures to deal with Greece’s debt pile based on short, medium and long-term measures.
“However, they remain little more than vague statements of intent, with no details on the size of each measure or quantification of the effects on Greek debt and financing needs”.
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“An actual haircut of the loans will not happen”, Dijsselboem said.
