New deal reached on Greek debt
Europe and the International Monetary Fund struck a deal early this morning to settle a damaging schism over the next phase of the Greek bailout.
The agreement came shortly before 1am in Brussels, after 12 hours of talks between euro zone finance ministers and IMF chief Christine Lagarde.
“I very much welcome the decisions taken by the ministers of finance,” European Central Bank chief Mario Draghi told reporters in the moments after the agreement.
“The decision will certainly reduce the uncertainty and strengthen confidence in Europe and in Greece.”
Greece's international lenders agreed on a package of measures to reduce Greek debt by €40 billion, cutting it to 124 per cent of gross domestic product by 2020.
In a significant new pledge, ministers committed themselves to take further steps to lower Greece's debt to "significantly below 110 per cent" in 2022 - the most explicit recognition so far that some write-off of loans may be necessary from 2016, the point when Greece is forecast to reach a primary budget surplus.
"When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt," German finance minister Wolfgang Schaeuble said.
Eurogroup Chairman Jean-Claude Juncker said ministers would formally approve the release of a major aid instalment needed to recapitalise Greece's teetering banks and enable the government to pay wages, pensions and suppliers on December 13th.
Greece will receive up to €43.7 billion euros in stages as it fulfils the conditions. The December instalment will comprise €23.8 billion for banks and €10.6 billion in budget assistance.
The IMF's share, less than a third of the total, will only be paid out once a buy-back of Greek debt has occurred in the coming weeks, but IMF managing director Christine Lagarde said the Fund had no intention of pulling out of the programme.
Greece is in danger of running out of cash and is reliant on emergency ECB support to stay afloat. At issue again was a push by Ms Lagarde for euro zone countries to bear losses on their financial support for the country.
Greece has been awaiting a delayed loan disbursement of €31 billion and the European Commission believes the country may need an additional €32.6 billion if its deficit-cutting deadline is extended by two years as discussed for months.
The IMF has long argued that debt reduction measures involving a “haircut” on the amount to be repaid – a process known as official sector involvement – are needed to bring the country’s debt to a “sustainable” level of 120 per cent of economic output by 2020.
The European ministers entered the talks having indicated their readiness to trim interest rates on Greek loans and forgo profit on the Greek bonds held by their national central banks for the ECB. Minister for Finance Michael Noonan indicated bailout recipients such as Ireland and Portugal would be exempted from such steps in respect of the aid they granted Greece before they entered their own rescue programmes.