ATHENS (AP) — Greece has avoided imminent bankruptcy after its international creditors finally agreed to give it the money it urgently needs, but the cash-strapped country’s economic distress is likely to drag on for years to come.
After three weeks of negotiations, Greece‘s euro partners and the International Monetary Fund agreed to release vital loan payments totaling some 44 billion euros ($57 billion) and introduce a series of measures designed to reduce the country’s massive debts to a more manageable level within a decade. These include reducing the interest rates Greece has to pay on the loans and a bond buyback program.
Greek Prime Minister Antonis Samaras hailed the agreement in Brussels early Tuesday as a victory that heralds “a new day for all Greeks,” but the reaction in the markets was a bit more cautious.
Most stock markets in Europe were modestly higher. The Stoxx 50 index of leading European shares was up 0.4 percent, but the main stock index in Athens fell 1.4 percent as investors had hoped for some more debt relief for the country. The euro also gave up earlier gains to trade 0.4 percent lower at $1.2947.
“There remains the potential for this deal to fall apart in the medium term, as there are a lot of moving parts and it is a long way away from the permanent fix that the IMF had been insisting upon,” said Gary Jenkins, managing director of Swordfish Research. “Instead, it is just one more big kick of the can down the road.”
For three years, Greece has been struggling to convince markets as well as its creditors that it can get a grip on its public finances, which spiraled out of control. The country is predicted to enter its sixth year of recession and is weighed down by an unemployment rate of 25 percent.
The so-called troika of the European Central Bank, IMF and the European Commission twice has agreed to bail out Greece, pledging a total of 240 billion euros ($310 billion) in rescue loans — of which the country has received about 150 billion euros ($195 billion) so far. In return for its bailout loans, Greece has had to impose several rounds of austerity measures and submit its economy to scrutiny.
Without the bailout money, the country would be staring bankruptcy in the face together with a possible exit from the 17-country eurozone, with potentially chaotic repercussions for the world economy.
The meeting agreed to release 34.4 billion euros ($44.58 billion) in loans to Greece in December, with the remainder issued in three installments in the first quarter of 2013. The money will be used to help recapitalize Greece‘s struggling banking industry and pay back suppliers.
Greek Finance Minister Yannis Stournaras said the deal was “very important, for it keeps Greece in the euro, offers it a significant opportunity to exit the vicious cycle of recession and overindebtedness, and contributes to its debt reduction.”
But opposition leader Alexis Tsipras, whose Radical Left Coalition wants Greece to scrap its bailout commitments, accused the conservative-led governing coalition of failing to defend the country’s interests.
“The solution does not include a viable program for Greece; therefore, it is no solution,” he said. “(It follows) successive failures of a program that has destroyed our society and meets none of the targets it sets.”
The meeting in Brussels was the third time in the past two weeks that finance ministers from the 17 European Union countries that use the euro had tried to hammer out a deal on the next installment of bailout money for struggling Greece.
The main aim of the bailout program is to right Greece‘s economy and get it to a point where it can independently raise money on the debt markets once the bailout loans start to run out at the end of 2014. It has been clear for months that the country is far from achieving that goal. Greece‘s debt levels are expected to hit 190 percent of its annual economic output next year— some 346 billion euros ($448.37 billion). The talks have centered on trying to get Greece back on the path to sustainability by reducing the country’s debt load.
Current forecasts have Greece‘s debt level at 144 percent of its output by 2020. The IMF originally said it would only agree to the bailout program if the country’s debt was at 120 percent by then. Tuesday’s meeting reached a compromise between the IMF and the euro ministers, in which Greece now will have to reach a 124 percent debt load by 2020 and below 110 percent by 2022. The difference between the current forecast and the new 2020 target would involve a cut in Greece‘s debt load of some 40 billion euros ($51.82 billion).View Entire Story
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