Wednesday, May 25, 2016

Another missed opportunity for a more lasting deal to help Greece

by Raoul Ruparel

Open Europe

May 25, 2016

The Eurogroup yesterday reached an agreement on releasing further bailout funds to Greece as well as a partial agreement on debt relief. However, for the most part the tough decisions are once again delayed, leaving Greece in an uncertain position moving forward. Open Europe Raoul Ruparel explains.

What has been agreed?

You can find the Eurogroup statement here and the press release here which spell out the key points of the agreement.

Essentially the first review of the third Greek bailout is now completed and the funds – €10.3bn in total, €7.5bn in June – can now be released. This means Greece will avoid any extended funding dramas this summer and will be able to repay the maturing bonds held by the ECB (as always expected).

More interesting, is that there was a broader agreement on debt relief, though this mostly involved delaying the key decisions until 2018 – after the current bailout is completed. The key points are:
  • Short term – use funding tools available to smooth Greece interest payments on Eurozone bailout loans.
  • Medium term – after 2018 provide greater debt relief via some combination of: extending the maturity of Greek bailout loans, repaying profits on bonds held by the ECB to Greece and buying out the more expensive IMF loans using leftover funds from the bailout. Keep Greece funding needs under 15% of GDP per year.
  • Long term – consider further steps to help Greece keep funding needs under 20% GDP per year. May create mechanism where these kick in automatically if funding need rises above threshold.

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