Latest Greece bailout tranche approved, will include International Monetary Fund buffer

Xavier Trudeau
Juin 19, 2017

The Eurogroup agreed to distribute a long-delayed bailout payment worth up to 8.5 billion euros ($9.47 billion) to Greece, the Eurogroup Chief Jeroen Dijsselbloem said in Luxembourg on Thursday.

Greece has relied on bailout money for seven years and hopes that it will be able to stand on its own feet when the bailout ends.

Euclid Tsakalotos, Greece's finance minister, said he is "confident" about the prospects of a deal later. In essence, that could mean payments could be postponed in the event of an adverse shock.

He said ahead of the meeting of the so-called eurogroup: "Today, we will give more clarity to Greece".

Thursday's compromise shows the disagreement has yet to be fully bridged.

Furthermore, the Eurogroup chose to extend maturities for the country's loan payments by up to 15 years, if necessary.

The reforms sought by lenders, including further Greek pension cuts and tax hikes, had placed mounting pressure on Greek Prime Minister Alexix Tsipras, who has faced resistance from an electorate tired of the austerity measures that Tsipras' Syriza party had pledged to end.

Moscovici said he hoped enough progress will emerge at the meeting of the so-called Eurogroup to prevent Greek Prime Minister Alexis Tsipras from calling a summit of eurozone leaders to discuss debt relief for his country.

Greek Prime Minister Alexis Tsipras has welcomed a decision by the country's worldwide lenders to approve the disbursement of 8.5 billion euros in bailout loans and to detail medium-term debt relief measures following talks in Luxembourg. "We don't want the flawless to be the enemy of the good".

Given that the Greek government has delivered on a wide array of economic reforms that were required for the payout of the next installment of rescue loans, there appears to be little doubt that the country will be cleared to get its next batch of bailout funds.

After three bailouts, Greece's debt now stands at a staggering 180 percent of annual output, by far the biggest national debt pile in Europe. The details of this mechanism will only be specified at the end of the bailout, alongside the rest of the debt-relief measures, but the aim is to ensure that if Greece is growing less than expected it would have to repay less of its debt.

One of the reasons why Greece's bailout program stalled over the past few months was a disagreement on debt relief between the eurozone and the International Monetary Fund, which contributed financially to Greece's first two bailouts but not the third.

However, Christine Lagarde, the IMF's managing director, said enough progress was made at Thursday's meeting for her to go to the International Monetary Fund executive board in Washington to get the stand-by facility of less than $2 billion.

Debt relief "will be implemented at the end of the programme, conditional on its successful implementation" in 2018, said Dijsselbloem, who is also Dutch finance minister.

The Greek government, whose popularity has fallen sharply as it imposed more austerity measures, faced more criticism Thursday when more than 2,000 older protesters marched through Athens to demonstrate against pension cuts.

"We can't live on 300 euros" they chanted, with some waving sticks.

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