Eurozone creditors reach ‘historic’ deal on Greek debt relief
Eurozone governments have brokered a long-awaited debt relief deal for Greece, pushing back repayment deadlines on almost €100 billion of bailout loans as the country prepares to exit its era of financial rescue programs.
Finance ministers hammered out the final points of an agreement in more than six hours of talks that stretched into the night in Luxembourg. The deal was immediately hailed by governments as a ‘historic’ step after eight years in which Greece has undergone three bailout programs and suffered the worst depression of any European economy in modern times, ft.com reported.
“It is an exceptional moment,” Pierre Moscovici, the EU’S economy commissioner, said after the meeting.
“The Greek crisis ends here tonight in Luxembourg.”
The agreement means the repayment of €96 billion of bailout loans, about 40 percent of the total Greece needs to repay the eurozone over the coming decades, will be pushed back 10 years. The earliest repayment deadlines shift from 2023 to 2033.
Other key part of the plan includes increasing the size of Greece’s final instalment of bailout money to help build up cash reserves that can sustain it over the months to come.
The negotiations were difficult. Discussions are always difficult when the stakes are high
A deal had become urgent given the little time that remains until the end of Greece’s bailout program on August 20, with the euro area keen to reassure investors that the country’s debt is sustainable before Athens returns to relying on the markets to finance spending.
“Greece is turning the page,” said Euclid Tsakalotos, the country’s finance minister.
“We have all the building blocks to leave the program with confidence.”
A compromise was reached after intense negotiations to resolve German reservations about parts of the debt relief package. Hopes for quick agreement on Thursday evaporated when Olaf Scholz, German finance minister, set tough conditions for accepting a significant maturity extension, prompting frantic hours of talks that ended with calls to national capitals asking heads of state to give their blessing to the final compromise.
Berlin was reticent about plans for a large increase in the size of Greece’s final tranche of bailout money from a planned €11.7 billion, in the end accepting the amount could be raised to €15 billion. This will leave Athens with cash reserves totaling €24.1 billion, enough to sustain the country for at least 22 months without it needing to go to the markets.
“The negotiations were difficult,” Bruno Le Maire, France’s economy minister, said. “Discussions are always difficult when the stakes are high.”
Berlin’s firmness reflects domestic pressure on Angela Merkel’s government, notably from her Bavarian conservative coalition partner, the CSU, which has criticized the chancellor for being too willing to use national money to solve eurozone problems.
Deferring repayment of the older bailout loans, including interest, by 10 years, and a parallel decision to extend their maturities by the same amount of time, leaves Greece with very small debt repayments until after 2030, something the euro area hopes will spur investors to buy the country’s bonds.
The 10 year extension was at the higher end of EU officials’ predictions in the run-up to the meeting of what might be politically feasible. Eurozone governments agreed last year that any extension would be between zero and 15 years.
Less sensitive parts of the debt-relief deal, included returning to Greece about €1 billion of annual profits that euro area central banks make on their holdings of the country’s debt.
The final agreement leaves out plans worked on by governments to link further debt relief for Greece to the country’s economic performance, an idea that was once central to the package but that had become marginalized in recent weeks in favor of focusing on the upfront maturity extension.
A key priority in the talks was to come up with a debt relief plan that could convince the International Monetary Fund that Greece’s debts are on a sustainable path, after years of disagreements between the Washingtonbased fund and eurozone governments, led by Berlin, over the state of the Greek economy.