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June 22, 2018

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A deal on debt relief for Greece - or another can down the road?

Here it is. Finally, a deal on debt relief for Greece. It is a fudge of sorts, but a deal that ends the eight-year-long Greek debt crisis - for now. After six hours of negotiations the eurogroup came up with something that reads much more simple that with all the different proposals that circulated preciously. These are the main components of the deal: 

  • a €15bn loan disbursement at the end of the programme, of which €3.3bn can be used to buy back IMF loans;
  • a 10 year extension of the EFSF loans, and a ten-year deferral of interest payments and amortisation starting from 2033; and
  • a return of profits from Greek bonds (SMP and ANFA) held by eurozone central banks, a total of €4bn, with semi-annual payments and subject to reform targets.

No growth clause, no interest-rate cuts, no major buyback programme. This is not debt relief in the way the IMF defines it, but debt relief of the kicking-the-can-the-road variety. Yet, it is a deal that ticks many of the boxes the Greek government was hoping for, writes Macropolis. It immediately increases to €18bn the cash buffer, which could reach €24bn if privatisation proceeds and bond issues are added over the next two years. But it also leaves Greece with a significant exposure to IMF loans. Even if Greece were to use the €3.3bn to buy back IMF loans, that still leaves €7.1bn to be repaid by 2024. Alternatively, Greece may decide to maximise the cash buffer. As expected, there was no mentioning of long-term debt relief, just a reaffirmation that the eurogroup would take action if necessary. 

Member states confirmed that they will return profits from holding Greek bonds, subject to conditionality. The international press, like Euroactiv, were shocked to learn that the German state earned a total of €2.9bn between 2010 and 2017 from holding Greek debt. This came out just shortly before the eurogroup meeting as a response by the German finance ministry to a parliamentary request from the Greens in the Bundestag.

The IMF abstained almost entirely from the debate as it is now officially leaving the programme and will only participate in the post-memorandum oversight, writes Kathimerini. Christine Lagarde refused to make any statements about Greece. What this means for the IMF role after the programme ends is yet to be seen.

So this is it, after eight years, three bailout programmes and endless eurogroup meetings. We will miss those excellent reporters who kept us updated but not the political drama with all its ups and downs. Then again, the post-memorandum surveillance will be pretty much the same as it is now, with quarterly reviews and evaluation reports. And with debt nearly at 180% of GDP, there is still the potential for things to turn wrong. But for now, everyone seems happy.

Our other stories

We also have stories on why a fearless Italy is so dangerous for the EU; on Seehofer doubling down; on the two different versions of a Franco-German roadmap for eurozone reform; on who will support it, and who will not; and on how Trump's trade policy is already hurting German car makers.

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