A Greek flag flutters atop the parliament building in Athens, Greece, June 21, 2018. REUTERS/Costas Baltas
June 21, 2018
By Francesco Guarascio and Renee Maltezou
LUXEMBOURG (Reuters) – Euro zone finance ministers on Friday offered Greece a 10-year deferral and maturities extension on a large part of past loans as well as 15 billion euros in new credit to ensure Athens can stand on its own feet after it exits its bailout in August.
Greece has been living primarily on money borrowed from euro zone governments in three bailouts since 2010, when it lost market access because of a ballooning budget deficit, huge public debt and an inefficient economy and welfare system.
With hundreds of reforms requested by its creditors already completed, Greece has made significant progress, but to lend to it again, investors need to know that it will not collapse under the weight of servicing its debt of almost 180 percent of GDP.
“We have a deal,” one official involved in the negotiations said, adding he believed it would be credible for financial markets. A second official confirmed the agreement.
Officials said the debt relief involved an extension of maturities and grace periods on loans granted to Greece under the second bailout – some 130 billion euros of outstanding loans – by 10 years to smooth out any sharp debt servicing peaks for decades ahead.
Greece will also get a 15 billion euro last disbursement to help it build a cash buffer that would make it more independent of market borrowing after it exits the bailout on Aug. 20.
Athens faces bond repayments of around 7 percent of its output next year, the first after its third bailout ends in August. For more details of Greece’s outstanding debt, check this graph: https://tmsnrt.rs/2JYhBYS.
The extension of maturities and deferred payments are to reassure investors that Greece can handle servicing its debt, a confidence booster needed all the more amid growing market concerns over looming trade wars and rising eurosceptism.
“Mooted debt relief measures only push the problem further into the future and Greece will remain vulnerable to a renewed downturn in its own economy or a flare-up in market fears about the euro-zone more generally,” Capital Economics, a research firm, said in a note.
Loan write-offs were not under consideration.
It was not immediately clear if the ministers also agreed on a plan to provide a financial incentive to Athens not to backtrack on the agreed reforms by linking annual cash payouts to a positive assessments that Greece stood by its agreements with creditors.
The plan involved paying out 1.2 billion euros a year until 2022 to Greece for continued implementation of reforms agreed under its bailout agreements, a document prepared for the ministers showed on Thursday.
(Reporting by Francesco Guarascio, Renee Maltezou, Jan Strupczewski; additional reporting by Renee Maltezou and Peter Maushagen; Graphic by Lea Desrayaud; editing by Grant McCool)
