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Thursday, October 6, 2022

Major breakthrough on Greek bailout reforms

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Greece and its international creditors have taken a big step towards an agreement that will ensure the cash-strapped country gets the money it needs in time to avoid a potential bankruptcy this summer.

For months, the bailout discussions have stalled amid disagreements over what reforms, including to pensions, tax and the labour market, that Greece should take in order to get the rescue money. Without the money, Greece would once again be facing the prospect of having to exit the eurozone – so-called Grexit.

“The big blocks have now been sorted out and that should allow us to speed up and go for the final stretch,” said Jeroen Dijsselbloem following a meeting of the eurozone’s 19 finance ministers in the Maltese capital of Valletta.

Once a broad agreement is reached in the coming weeks, Mr Dijsselbloem said the eurozone will come back to issues related to Greece’s stringent medium-term budget targets and the country’s debts – key conditions of the Greek government.

EU Commission vice-president Valdis Dombrovskis said a deal on the latest steps to keep Greece afloat should be within reach by the time the eurozone ministers meet again on May 22 – easily in time for Greece’s next big debt-repayment in July.

Another key development on Friday appears to be the ongoing involvement of the International Monetary Fund, which has been part of Greece’s bailout programmes since the first rescue back in 2010. In recent months, there has been an open disagreement between the IMF and the eurozone over such matters as the sustainability of Greece’s debts going forward.

“There is agreement on these main topics, on these big reforms, on the size sequencing and the timing – that is with the IMF absolutely yes,” Mr Dijsselbloem said. “I could not talk about an agreement on those issues if the IMF had not agreed.”

The broad outlines of Friday’s agreement involve Athens making further economic reform commitments until 2020. Without the loan, Greece would struggle to make a debt payment in July, raising anew the prospect of default.

The last time, Greece faced potential bankruptcy was in July 2015, when the government eventually agreed a three-year bailout. Greek Prime Minister Alexis Tsipras said earlier this week that if a breakthrough on plans to pay Athens the next instalment fails to materialise over coming days, then the eurozone should hold a special meeting of leaders. Friday’s developments appear to have put paid to that threat.

Mr Tsipras had blamed unnamed negotiators among Greece’s European creditors and the International Monetary Fund for “moving the goalposts” each time Greece was close to meeting approval conditions for the bailout.
Even Wolfgang Schaeuble, the German finance minister who has been one of Greece’s sharpest critics over the past few years, said he did not expect any major hitches ahead. “The longest distance is behind us,” he said.

As part of its third international bailout agreement, Greece has to make a series of sweeping reforms to its economy in return for the loans. But the talks have dragged on for months, freezing the latest loan payout and hurting the chances of a self-sustaining Greek economic recovery after years of recession and turmoil.

Mr Tsipras’s government is pushing for a comprehensive deal that would cover more than just spending cuts and reforms by Greece, but also alleviate the country’s debt burden and pave the way for its return to international bond markets later this year. Greece has depended on international bailouts since 2010 after it was unable to borrow on international bond markets.

To receive the money, successive governments slashed incomes, hiked taxes and implemented market reforms.
Though helping to put the public finances on a surer footing, the measures came at a cost – the Greek economy lost a quarter of its output.

Mr Dijsselbloem conceded that the failure to agree the release of the next batch of bailout funds had harmed Greece’s economic recovery in recent months.”That momentum is slipping away from us so we really need to work fast and have it done, certainly well in time for the next payments Greece has to make,” Mr Dijsselbloem said.

Currently demanded cutbacks include new pension cuts, a broadening of the tax base, labour reforms and privatisations. These will require approval by Greece’s parliament, where Mr Tsipras holds a three-seat majority.

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