Greece will receive urgently needed loans to rescue its stricken economy after eurozone finance ministers and the International Monetary Fund agreed a deal on reducing the country’s debt.
The agreement was reached on Monday after 12 hours of talks at the third meeting of the finance ministers and the IMF in as many weeks.
Lenders agreed on a package of measures to reduce Greek debt by $50bn, cutting it to 124 per cent of gross domestic product by 2020.
In a significant new pledge, ministers committed themselves to take further steps to lower Greece’s debt to “significantly below 110 percent” in 2022.
This is the most explicit recognition so far that some write-off of loans may be necessary from 2016, the point when Greece is forecast to reach a primary budget surplus, according to Reuters.
“When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt,” Wolfgang Schaeuble, Germany’s finance minister, said.
Jean-Claude Juncker, Eurogroup chairman, said ministers would formally approve the release of a major aid instalment needed to recapitalise Greece’s ailing banks and enable the government to pay wages, pensions and suppliers on December 13.
Greece will receive up $55bn in stages as it fulfils the conditions. The December instalment will comprise $29bn for banks and $10.2bn in budget assistance.
The IMF’s share, less than a third of the total, will only be paid out once a buy-back of Greek debt is completed in the coming weeks.
But Christine Lagarde, the IMF chief, said the Fund had no intention of pulling out of the programme.
To reduce Greece’s debt pile, ministers agreed to cut the interest rate on official loans, extend their maturity by 15 years to 30 years, and grant Athens a 10-year interest repayment deferral.
They promised to hand back $14bn in profits accruing to their national central banks from European Central Bank purchases of discounted Greek government bonds in the secondary market.
They also agreed to finance Greece to buy back its own bonds from private investors at what officials said was a target cost of around 35 cents in the euro.
Mario Draghi, head of the European Central Bank, said on leaving the talks: “I very much welcome the decisions taken by the minsters of finance. They will certainly reduce the uncertainty and strengthen confidence in Europe and in Greece.”
The euro strengthened against the dollar after news of the deal was first reported by Reuters.
Juncker said the accord opened new hope for Greeks.
“This is not just about money. This is the promise of a better future for the Greek people and for the euro area as a whole, a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum, declining debt ratios and a return to growth,” he told a 2am news conference.
Yannis Stournaras, Greece’s finance minister, said earlier that Athens had fulfilled its part of the deal by enacting tough austerity measures and economic reforms, and it was now up to the lenders to do their part.
Greece, where the euro zone’s debt crisis erupted in late 2009, is the currency area’s most heavily indebted country, despite a big “haircut” this year on privately-held bonds. Its economy has shrunk by nearly 25 perc ent in five years.
Negotiations had been stalled over how Greece’s debt, forecast to peak at 190-200 per cent of GDP in the coming two years, could be cut to a more sustainable 120 per cent by 2020.
The agreed figure fell slightly short of that goal, and the IMF was still insisting that euro zone ministers should make a firm commitment to further steps to reduce the debt stock if Athens implements its adjustment programme faithfully.
The key question remains whether Greek debt can become sustainable without euro zone governments having to write off some of the loans they have made to Athens, the Reuters news agency reported.
Germany and its northern European allies have hitherto rejected any idea of forgiving official loans to Athens, but EU officials believe that line may soften after next year’s German general election.