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 $56.8 billion Cdn 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 per cent, but the main stock index in Athens fell 1.4 per cent as investors had hoped for some more debt relief for the country. The euro also gave up earlier gains to trade 0.4 per cent 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."
Unemployment at 25 per cent
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 spiralled out of control. The country is predicted to enter its sixth year of recession and is weighed down by an unemployment rate of 25 per cent.
The so-called troika of the European Central Bank, IMF and the European Commission has twice agreed to bail out Greece, pledging a total of $309.6 billion in rescue loans — of which the country has received about $193.5 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 $44.4 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 over-indebtedness, 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."
Third time's a charm
The meeting in Brussels was the third time in the last 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. It has been clear for months that the country is far from achieving that goal. The talks have centred on trying to get Greece back on the path to sustainability by reducing the country's debt load.
Tuesday's meeting reached an agreement where Greece's debt level would be reduced from the 190 per cent of its economic output predicted for 2013 — some $262 billion — to 124 percent by 2020 and below 110 percent by 2022. The IMF had originally insisted on a debt-to-GDP ratio of 120 percent by 2020.
To reach this level, the meeting agreed on a raft of measures. These included:
- A cut of 100 basis points on the interest rate charged to Greece by other eurozone member states — excluding those that are also receiving bailouts.
- A 15-year extension of the maturities of loans from other countries and the eurozone's bailout fund, the European Financial Stability Facility, and a deferral of interest payments by Greece on EFSF loans by 10 years.
- A program whereby Greece could buy back some of its debt from private investors. The details of this program are still to be agreed by the eurogroup and IMF.
The deal still requires the authorization of a number of Parliaments in Europe, including Germany's, where patience with repeated Greek rescues has been running low.
However, Rainer Bruederle, the caucus leader of the Free Democrats, the junior coalition partner, said he expects broad approval this time on Thursday.
"Conditions have been put together which maintain a tough mechanism toward Greece, but still save us from a collapse of the Greek economy possibly having consequences that could pull down the whole of Europe," he said.
Greek newspapers were divided on whether the agreement would give the country breathing space to right its economy, or keep it trapped in years of recession and austerity.
The broad-circulation Ta Nea daily argued in an editorial that the deal affords Greece "a last chance" to escape the crisis.
The left-wing Efimerida ton Syntakton carried the headline "A poisonous (loan) installment," arguing that the agreement "condemns Greek society to a slow death."
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