Eurozone finance ministers meeting in Brussels on Wednesday morning agreed a fresh 10.3 billion euros ($12 billion) in bailout money for Greece avoid bankruptcy.
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LONDON, May 25 Greek government bond yields slid to six-month lows on Wednesday, dragging peripheral debt yields with them after euro zone finance ministers agreed to unlock new funds and gave their firmest offer yet of debt relief.
“We now have global agreement which opens the way for a significant disbursement of much needed funding for Greece and important measures on debt relief”, which will be progressively phased in, said EU Commissioner Pierre Moscovici.
The US-based International Monetary Fund (IMF) had said that easing Greece’s huge debt burden was a condition for its continued participation in the bailout programme, despite opposition from Germany to giving Athens more favours.
“The ECB would also then need to discuss what the Eurogroup’s deal might mean for possible eventual eligibility of Greek government bonds for purchase under the QE programme too”, he said.
The IMF insists that Greece needs “upfront” and “unconditional” debt relief, saying in an assessment on Monday that Greece can not meet the terms of the bailout program and that interest payments on the soaring national debt would eat up 60 percent of the budget by 2060 without debt forgiveness.
Greece’s creditors have agreed to extend further bailout loans to the country, alongside debt relief, in what they called a “major breakthrough”.
The IMF has refrained from contributing to the bailout until it carries out another review of the Greek economy and until there are concrete solutions to deal with the debt load.
Greece owes its lenders more than €300bn, which equates to about 180% of its annual gross domestic product.
Importantly for Finance Minister Wolfgang Schäuble, who represents Germany at the Eurogroup, there will be no talk of debt relief (reducing the total amount to be paid) until 2018, well after German elections late next year.
“Without the International Monetary Fund on board, there is no programme”, Schaeuble conceded, adding that “we have no quarrel with the IMF”.
“There is a reason to look at debt relief because the debt is very high and there will be some problems in the future, I think the debt analysis shows that”, Dijsselbloem said.
The Fund’s staff on the ground had trouble getting its management to agree to the compromise deal, one eurozone source said, “at one point” even failing to get IMF chief Christine Lagarde on the phone.
The move came after the Greek parliament on Sunday approved another round of spending cuts and tax increases demanded by global creditors.
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“An actual haircut of the loans will not happen”, Dijsselboem said.
