EU agrees to lend $96b to Greek bailout
Euro zone finance ministers have agreed to lend Greece up to 86 billion euros ($96 billion) after Greek lawmakers accepted their stiff conditions despite a revolt by supporters of leftist Prime Minister Alexis Tsipras.
Assuming approval by the German and other parliaments, 13 billion euros should be in Athens next Thursday to pay pressing bills and a further 10 billion will be set aside at the European Stability Mechanism, earmarked to bolster Greek banks' capital.
In all, euro zone governments will lend 26 billion euros in a first tranche of the bailout before reviewing Greece's compliance with their conditions in October.
One remaining uncertainty - aside from Tsipras' ability to deliver sweeping budget cuts and privatizations opposed by many of his own party - is the role of the International Monetary Fund. After backing two previous bailouts, the IMF renewed its call for the Europeans to grant Athens debt relief - a bone of contention between the Eurogroup and the Washingtonbased Fund.
Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), said, "the policy package specified in the Memorandum of Understanding (MoU) recently agreed between the Greek authorities and European institutions, with input from Fund staff, is a very important step forward. It not only reverses much of the policy backtracking that caused the previous program to run seriously off track, but puts in place wide-ranging policies to restore fiscal sustainability, financial sector stability, and a return to sustainable growth. I particularly welcome the authorities' efforts to overcome the serious loss of confidence in recent months through strong upfront actions. Most of these actions have been fully specified in the MoU, and key measures including in the fiscal structural areas will be implemented as prior actions for the disbursement of the first European Stability Mechanism (ESM) tranche."
"In two areas that are of critical importance for Greece's ability to return to a sustainable fiscal and growth path-the specification of remaining parametric fiscal measures, not least a sizeable package of pension reforms, needed to underpin the program's still-ambitious mediumterm primary surplus target and additional measures to decisively improve confidence in the banking sector-the government needs some more time to develop its program in more detail. This is understandable, and I am encouraged in this regard by the government's commitment to work with its European partners and the Fund on completing these essential reforms in the coming months. With the detailed specification of these outstanding reforms, the recently agreed MoU will entail a very decisive and credible effort on the part of the Greek authorities to restore robust and sustainable economic growth. However, I remain firmly of the view that Greece's debt has become unsustainable and that Greece cannot restore debt sustainability solely through actions on its own. Thus, it is equally critical for medium and long-term debt sustainability that Greece's European partners make concrete commitments in the context of the first review of the ESM program to provide significant debt relief, well beyond what has been considered so far.
"In conclusion, I believe that the actions to be taken by the authorities by the time of the first review, in conjunction with the policies specified in the MoU, once they have been supplemented by the above-mentioned fiscal structural and financial sector reforms, as well as by significant debt relief, will provide the basis for a credible and comprehensive program to restore medium-term sustainability. We look forward to working closely with Greece and its European partners in the coming months to put in place all the elements needed for me to recommend to the Fund's Executive Board to consider further financial support for Greece." Officials said the Fund needed more assurances and detail on Greek reforms, notably to pensions, and steps to persuade it that Greece's debt burden was sustainable.
But after deadlock since January that ravaged the already weak Greek economy and ended in a dramatic U-turn a month ago by the anti-austerity leftist government to avert Athens' expulsion from the euro, there was a cautious sense of optimism among ministers gathered in a Brussels deep in summer holiday languor.
"After six months of very difficult negotiations with lots of ups and downs, we finally have an agreement," Greek Finance Minister Euclid Tsakalotos told reporters on Friday. His appointment by Tsipras six weeks ago in place of his abrasive predecessor has been hailed by counterparts as a mark of a new Greek "realism".