IMF and Eurozone loan to cover Greece’s July debt repayment
Greece has reached agreement with its European creditors on a new bail-out programme aimed at preventing another summer debt crisis.
The 11th hour deal struck at the Eurogroup meeting of finance ministers in Luxembourg on Thursday includes conditional backing from the International Monetary Fund. The meeting was attended by IMF managing director Christine Lagarde.
It comes after months of wrangling amongst creditors over the Greek debt crisis, with the country set to default on repayments for the second time in three years due to lack of funds. Its next repayment of €7.3bn (US$8.1bn or US£6.4bn) is due in July.
The eurozone’s finance ministers agreed to an €8.5bn loan from its 18 other members that will be paid to Greece through the European Stability Mechanism, with the first instalment set to be paid in early July.
The IMF has pledged to back the deal with a US$2bn (€1.8bn) loan, which will be disbursed once debt relief measures for Greece have been finalised by the Eurogroup. Ministers have agreed an outline package of measures, which is conditional on Greece hitting its financial targets.
The IMF insisted that the programme should include debt relief measures, despite opposition from Germany – whose government has been wary of easing terms for Greece ahead of elections in September. Under the IMF’s rules, the international financial organisation could only participate in the bailout programme if it judged the Greek debt to be sustainable.
As reported by the EUobserver, after the compromise deal was struck, Lagarde said: “It is the second-best solution. It is not a bad solution. The crisis that we would otherwise have had mid-July, had this not happened, is avoided. So stability is maintained.”
Eurogroup chairman Jeroen Dijsellbloem said after the meeting: “We welcomed the ambitious policy package that was fully agreed between Greece and the institutions and the adoption of the agreed prior actions for the second review.
“The fiscal measures for the post-programme period that have been adopted address the underlying structural imbalances in Greek public finances. Decisive steps have also been taken to reduce non-performing loans and to operationalise the privatisation and investment fund.
“The policy package also contains a large number of reforms to increase [the] potential growth of the Greek economy, whilst at the same time reinforcing the social safety net.”
The yield on Greece’s 10-year government bond fell to its lowest level for a month following the announcement, which Greek Prime Minister Alexis Tsipras hailed as “a decisive step for the country exiting from this crisis”.
“It was a clear step of confidence for the markets,” he said, Reuters reported.
On Friday, Spain threatened to block the deal unless its conditions were met over a sale and leaseback deal on 28 state-owned buildings in Greece, while senior German Social Democrat lawmaker Johannes Kahrs called for Germany’s parliament to conduct a full debate on the agreement.
However, EU officials said they were convinced the issues would be resolved quickly and would not impact on the bail-out payments.
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See also:
Euro working group to meet this week as Greece seeks to unlock bailout funds
About Liz Heron
Liz Heron is a journalist based in London. She worked on daily newspapers for more than 16 years as an education correspondent, section editor and general news reporter. She was Education Editor of the South China Morning Post in Hong Kong and has contributed to a wide range of British media including The Independent, The Guardian and the BBC.
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