Greece creditors agree debt relief in bailout exit deal

Roman Schwartz
June 24, 2018

Eurozone finance ministers early on Friday extended maturities and deferred interest of a major part of their loans to Greece along with a big cash injection to ensure Athens can stand on its own feet after it exits its bailout in August. The yield on Greece's benchmark 10-year bond eased 0.2 percentage points to 4.1 per cent.

Greece's massive debt came to light in 2009.

It also provides the country with enough ready cash to coast it over almost two more years, without having to resort to expensive worldwide bond markets after bailout loans run out in August. "It means, however, that we are leaving the thorny path of austerity".

"The Greek crisis ends here tonight", said EU Economic Affairs Commissioner Pierre Moscovici, after the marathon talks in Luxembourg.

Yields on Greek bonds dropped with the 10-year note falling as much as 1.01 percent at 11.57 am Athens time on Wednesday to nearly a month low, while the Athens Stock Exchange General Index rose as much as 1.1 percent in intraday trading amid optimism that euro-area finance ministers will reach a deal on Greece on Thursday.

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"We will examine the sustainability of Greece's debt in the course of our upcoming Article IV Consultation with Greece, which starts next week".

Once the bailout is over, Greece will have to finance itself by borrowing on worldwide bond markets. The country has issued bonds three times since the beginning of the bailout, twice within the previous year.

With hundreds of reforms requested by its creditors already completed, Greece has made significant progress, but to lend to it again, investors need to know that the country will not collapse under the weight of servicing its debt of 180 percent of GDP.

The creditors also agreed to a final disbursement of €15 billion, aimed to help Greece repay arrears, finance maturing debt and build up a cash buffer of €24.1 billion that will help it access financial markets. The money will be used to reduce gross financing needs or to finance other agreed investments, and will be conditional on Greece sticking to the agreed implementation of reforms. "Now we should all, we and our partners, acknowledge that what was achieved was thanks to the sacrifices of Greek people", Pavlopoulos said on his part.

Centeno said that under the deal, Greece could delay back repayment on billions in loans by 10 years, giving it a financial breather, while stricter deadlines could have further choked the economy over the next decade. "We think it's a tough requirement but you have to take the whole package as one".

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