Greece won breathing space yesterday with long-frozen eurozone loans to restart from next month and a first clear admission that a chunk of the country’s debt burden will be written off down the line.
After 13 hours of talks in Brussels, the eurozone and the IMF agreed to unlock 43.7 billion euros (US$56 billion) in loans and on the need to grant significant debt relief for decades to come.
Greece must still meet a series of conditions, but “the decision will certainly reduce the uncertainty and strengthen confidence in Europe and in Greece,” said European Central Bank (ECB) President Mario Draghi, who left the talks before a final press conference.
Starved of bailout financing since the summer, Greek Prime Minister Antonis Samaras hailed the deal in Athens, while German Finance Minister Wolfgang Schaeuble said the package would be presented to German lawmakers by the end of the week.
Other member states will also have to obtain their parliament’s approval for the deal.
Finance ministers, the IMF and the ECB said the money would be paid in four instalments from Dec. 13 through to the end of March, conditional on Greece funneling income back to creditors at source and on the implementation of tax reforms by Athens.
There will be a mixture of techniques used to bring down Greece’s debt burden.
These will begin with a buyback by Greece of old debt that has fallen in value on commercial money markets, as well as national central banks across the eurozone foregoing profits on holdings of Greek debt whose worth has slumped.
Interest rates due to eurozone creditors will also be trimmed or deferred — Ireland and Portugal can now be expected to demand parity — while maturity dates will be pushed back by years.
The IMF is pushing for a so-called “haircut” or writedown of debt by eurozone partner governments in the way banks wrote off most of the loans due to them earlier this year, but Germany has come out against this ahead of a general election next year.
However, other “AAA” rated states have said they would not exclude the possibility of a write-down of debt from 2015 onwards.
France has long been a firm backer of all efforts to keep Greece in the euro and, having lost its “AAA” status, French Finance Minister Pierre Moscovici said: “Let’s assume our responsibilities.”
Greece has been waiting since June for a 31.2 billion euro loan instalment from the 130 billion euro rescue granted earlier this year.
In exchange, Athens has pledged to implement a new series of radical austerity measures to cut its annual overspending.