Greece was granted some short-term debt relief from European creditors at the December 5 Eurogroup meeting even though it did not meet all the requirements of its bailout program that have staved off both the country’s bankruptcy and Grexit thus far.
At the Eurogroup meeting of 19 Eurozone finance ministers in Brussels, Greece’s creditors offered some immediate short-term help to the ailing Greek government.
As reported by the Associated Press, a smoothing of some of Greece’s repayment profile in order to prevent debt repayment obstacles on the way and a waiving of an interest rate increase due to take effect next year were some of the measures offered.
Greece’s creditors promised the cash-strapped country some debt relief measures for both the short and long term in return for successfully enforcing a wide-ranging package of economic reforms and budgetary restraints.
“They are much more ambitious measures than we expected in May or hoped for, so that’s very promising,” said Greek Finance Minister Euclid Tsakalotos. “This will start helping the Greek economy all at once.”
According to Klaus Regling, the ESM head, the body that releases the bailout funds, Monday’s package of measures will effectively reduce Greece’s debt burden by 20 percentage points by 2060. While he felt that the timescale involved made for a large amount of uncertainty, Regling stated that the benefits to Greece were “clear” and would help make the Greek debt sustainable.
Unlike other countries which have elected to cut spending and hike taxes, Greece is still burdened by exceptionally high debt of more than 175 percent of its annual GDP, far more than any other Eurozone country, and a level the IMF considers unserviceable. In order for Greece to get its debt down to manageable levels, it would take the country decades of economic growth.
While a reduction of Greek debt has been ruled out, in particular by German finance minister Wolfgang Schauble, the Tsipras government insists that its creditors make good on their promise in 2015’s bailout agreement that Greece get some debt relief, which could ultimately take the form of a longer repayment scheme for Greek loans or even further reductions in interest rates payable on the loans.
Jeroen Dijsselbloem, the eurozone’s top official, clarified the Eurozone’s stance that longer-term help for Athens would not be offered until mid-2018 when Greece’s current bailout program is due to end.
Under the terms of the bailout, which could amount to 86 billion euros ($91 billion) in loans over three years, the Greek government promised a series of economic reforms and budget cuts.
To get there, Greece needs to secure successful reviews of its adherence to the bailout program in stages. If it does, it would stand to get Greek bonds closer to eligibility for purchase by the ECB through its bond-buying program from which it has been excluded. This, in turn, could help reduce the interest rates Greece will have to pay when it re-enters the bond markets again from 2018.