Greece’s euro-area creditors struck a landmark deal to ease repayment terms on some of the nation’s mountain of debt and clear the way for the country to exit the lifeline that’s kept it afloat since 2010.
The debt compromise reached in Luxembourg by the bloc’s finance ministers comes after months of acrimonious talks and just as the Mediterranean nation is set to leave its bailout program in August. A deal to ease Greek debt has long been seen as a key ingredient in the country’s successful return to economic health and foray back into financial markets.
“After eight long years Greece will finally be graduating from its financial assistance,” said Portuguese finance minister Mario Centeno, who presides over the meetings with his euro-area counterparts. “This is it.”
Under the agreed debt-relief plan, maturities on 96.6 billion euros ($112 bn) of loans Greece has received from its second bailout would be pushed out by 10 years. The extension will be accompanied by a 10-year grace period in interest and amortization payments on the same loans.
Both these steps are part of a broader package of measures aimed to ensure that Greece will be able to service its debt over the next decades.
“We believe that the debt is now viable, we can have access to the markets now and in a context of surveillance and by continuing our reforms we can pursue this,” Greek finance minister Euclid Tsakalotos said after the meeting.
The creditors also agreed to a final disbursement of 15 bn euros, aimed to help Greece repay arrears, finance maturing debt and build up a cash buffer of 24.1 bn euros that will help it access financial markets. Some of that cash could be used to buy back debt it owes to the International Monetary Fund or the European Central Bank, which is more expensive and matures sooner.
In the longer term, euro-area creditors said they could consider measures such as further re-profiling or longer grace periods of loans if needed if economic conditions are unexpectedly worse than anticipated.
“We welcome the Eurogroup’s readiness to consider further debt measures in the long term in case adverse economic developments were to materialize,” European central bank president Mario Draghi said. “We believe that the adoption of the set of debt measures agreed by the Eurogroup will improve debt sustainability in the medium term.”
Other agreed debt measures include the return to Athens of some 4 billion euros in profits the euro-area central bank made on their Greek bond holdings and the abolition of a 220 million-euro annual penalty attached to some of the country’s loans.
These measures will be linked to Greece’s performance after the end of its bailout, and will be disbursed in slices over the next four years as long as the country doesn’t stray from its pre-agreed reforms and budget path. As part of the debt deal, Greece is foreseen to maintain a primary surplus -- which excludes interest payments -- worth 2.2 per cent of gross domestic product from 2023 until 2060.
This means Athens is set to remain under close monitoring by its former bailout auditors, in order to ensure it continues implementing reforms in a small set of areas such as privatizations and the reduction of bad loans.
“We will continue to look at whether the reforms are sticking,” Dutch finance minister Wopke Hoekstra said on Friday.
While investors are likely to welcome such a commitment to reforms, they may be given pause by the fact that the IMF did not activate its planned lifeline for Greece. The Washington-based fund had repeatedly said it would do so once the country’s euro-area creditors took sufficient steps to ensure its debt remained sustainable in the long term.
Still, the IMF gave it’s blessing to the debt agreement.
“There is no doubt in our mind that Greece will be in a position to access financial markets,” IMF Managing Director Christine Lagarde said, adding that for the medium term, the agreed measures would ensure Greek debt remained sustainable. “As far as the longer term is concerned, we have reservations.”