Eurozone governments on 25 May offered Greece a compromise on debt relief in 2018, by leaving key details to be decided later. This was to bridge Germany’s view that no action was needed immediately, and the International Monetary Fund’s (IMF) call for decisions to be taken now.
After talks that lasted into early Wednesday, Eurogroup ministers agreed to release 10.3 billion euros in new funds, in recognition of painful fiscal reforms pushed through by Prime Minister Alexis Tsipras’s leftist-led coalition.
The debt relief was a big step forward, providing investors with more certainty in investing in Greece, return to market financing for Greece in 2018 and for foreign direct investment.
The possible debt relief will be delivered at the end of the programme in mid-2018Eurozone Ministers
Greece will get most of the next installment in June to redeem bonds held by the European Central Bank, repay International Monetary Fund (IMF) loans, and to clear arrears in government payments to the private sector.
The Finance Minister, Euclid Tsakalotos, said that the cycle could now be broken, but many Greeks remained unconvinced that the sacrifices made were worth the pain.
The Eurozone’s and IMF’s forecasts of Greece’s ability to repay the loans were different, with the Eurozone saying that Greece would reach primary surplus of 3.5 of GDP in 2018 and keep it level for a decade, while the IMF predicted a 1.5 percent surplus, maximum.
Eurozone ministers spelled out the criteria for stretching out maturities on Greece’s loans and the grace period before it has to start paying interest on them. They agreed that Greek gross financing needs should be kept below 15 percent of its annual economic output in the medium term, and below 20 percent beyond that.
IMF European director Poul Thomsen believed that the measures, which were yet to be specified, would deliver the necessary relief, saying:
I do not see this as a weakening of the debt relief proposals.
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