Greece Receives A New Deal

Brussels, Belgium

Greece’s international lenders finalized a deal on Tuesday, allowing Greece to receive the necessary loans to keep the Greek economy afloat and manage their debt burden at more sustainable level.

Following 13 hours of talks, Greece’s international creditors (European Central Bank, IMF, and European Finance Ministers or Eurogroup leaders), known as the “troika”concluded their third meeting by agreeing to a final package of measures to lower Greek debt by €40 billion ($51 billion), allowing Athens to receive the next tranche of bailout loans that totals €34 billion euros ($44.7 billion) in December.

* Correction- On the Nov 21st post here at Schweitzfinance the 34 billion euro tranche figure was inaccurately listed as €32.6 billion ($41 billion).

Since June Greece has been waiting for their financial package to help the indebted government in Athens to remain solvent and pay down its bills. The package will allow Athens to recapitalize Greece’s cash strapped banks and permit the government to pay wages and pensions.

The package will also help to lower Greece’s debt load from 190 percent of gross domestic product in 2014 to 124 percent of GDP in 2020, a level that is notably higher than the 120 percent level that the IMF had originally expected Greece to attain by 2020.

The IMF made some concessions during the talks in Brussels by permitting Greece’s debt to GDP to raise four percentage points to 124 percent by 2020 while European finance ministers committed themselves to take even greater steps towards lowering Greece’s debt level to “significantly below 110 percent” in 2022.

The IMF had called for further concessions by the European creditors, including a debt cut or write down of Greece’s debts held by European government institutions.

But European finance leaders from northern countries such as Germany, the Netherlands, and Finland showed little willingness to write off Greece’s debts and offered a legal defense.

“Debt relief would be legally questionable” German Finance Minister Wolfgang Schaeuble said on Tuesday.

 Previously, Germany expressed zero tolerance for writing down any of Greece’s publicly held debt if it was linked to a new guarantee of loans. 

“We didn’t discuss a debt cut,” Schaeuble said following the meeting in Brussels. “It’s out of the question” he said.

To reduce Greece’s debt burden to 124 percent by 2020, Eurogroup leaders pledged to follow through with a package of steps that includes a debt buyback  funded by the euro area rescue fund, reducing the interest rate on Greek loans, and returning euro area central bank profits to Greece’s rescue fund by returning €11 billion euros ($14 billion ) to Athens in profits from ECB purchases of Greek government bonds.

Eurogroup leaders agreed to extend the interest rate maturity on Greek loans by 15 years to 30 years, and allow Athens to have a 10-year interest repayment deferral.

They also agreed to finance Athens to buy back its own bonds from private investors at a discounted rate.

Jean-Claude Juncker, the head of the Eurogroup, said Greece would get the next installment of euros on December 13th.

The disbursement of € 9.3 billion euros for Greece in the first quarter of 2013 depends on inspectors from the “troika” confirming that the Greek government has successfully met a January deadline for carrying out tax reform.

European Central Bank President Mario Draghi spoke positively about the package deal after leaving the talks.

 “I very much welcome the decisions taken by the  minsters of finance. They will certainty reduce the uncertainty and strengthen confidence in Europe and in Greece.”

Thus far Greece’s international creditors have already pledged € 240 billion euros in rescue loans of which Greece has received approximately € 150 billion euros.

On November 12th Greece was given two more years, until 2016, to reduce its budget deficit.

 

 

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