Brussels (AFP) – Eurozone ministers reached Wednesday a deal to unlock urgently needed cash for Greece but analysts warned promises to tackle the country’s debt mountain are sketchy, spelling trouble further down the road.
The agreement unlocks 10.3 billion euros ($12 billion) in bailout cash that Greece needs to repay big loans to the European Central Bank (ECB) and International Monetary Fund (IMF) in July, having already fallen behind in paying for everyday government payments and wages.
The US-based IMF has made easing Greece’s huge debt burden a condition for its continued participation in the bailout programme, despite opposition from Germany to giving Athens more favours.
The 19 ministers from the countries that use the euro met two days after Greek lawmakers passed yet another round of spending cuts and tax hikes demanded by its creditors.
Eurogroup chief and Dutch Finance Minister Jeroen Dijsselbloem called the deal, hammered out at late-night talks in Brussels, a “major breakthrough”.
The bailout rewards Athens for meeting the terms of its 86-billion-euro bailout programme agreed last July.
Greece’s creditors will pay a first 7.5-billion tranche in June and the rest in a series of later disbursements.
Greek government bonds soared in response to the deal, pushing the yield on the benchmark 10-year bond to below 7 percent for the first time since November as the once very real chance of Greece quitting the eurozone was now seen as remote.
“The question of eurozone membership is off the table,” French Finance Minister Michel Sapin told a cabinet meeting in Paris Wednesday. “The crisis between Greece and the eurozone is over and behind us.”
The Athens stock market firmed initially, then tested negative territory, before ending the day little changed.
– ‘Kicking the can down the road’ –
The hardest part of the talks was defusing the row between Greece’s creditors, the eurozone governments and the IMF, over the state of the Greek economy and debt relief.
“The Eurogroup agreed today on a package of debt measures which will be phased in progressively,” said Dijsselbloem.
“For the first time there is a clear and binding roadmap for debt relief,” Greek government spokeswoman Olga Gerovassili said.
But analysts, pointing to a lack of detail on such a deal, suspected negotiators simply postponed thorny discussions.
“In a spectacularly sophisticated show of kicking the can down the road, debt relief will be considered — later,” said Paul Donovan, an economist at UBS. “With nothing so vulgar as amounts of money being discussed.”
One eurozone official candidly confirmed that this reading was accurate.
“Yes we did kick the can down the road,” he said.
The Fund’s staff on the ground had trouble getting its management to agree to the compromise deal, one eurozone source said.
“At one point” even failing to get IMF chief Christine Lagarde on the phone, said the source.
“On balance, the IMF had to make the largest concessions,” observed Tullia Bucco, analyst at UniCredit.
In a brutal report on the eve of the Eurogroup meeting, the IMF had warned that Greek public debt at the current level of about 180 percent of gross domestic product was unsustainable and must be reduced.
IMF European Director Poul Thomsen said the lender had made “concessions” but said that it would take part in the programme “provided that the debt sustainability measures make the debt sustainable”.
The blunt warning made analysts wonder about the size of the gap that Europe and the IMF still need to bridge.
This seemed to be borne out when the IMF, a mere 15 hours after the deal, highlighted remaining differences, saying it was not ready to add its funds to the bailout as it stands now.
A senior IMF official said the Fund hoped that EU creditors would be able to meet its conditions on debt relief to join the bailout by the end of the year.
“The crisis is far from over,” said Jonathan Loynes at Capital Economics.
Athens, meanwhile, welcomed the deal, with a government source saying that it guaranteed “the financing of the economy in very favourable conditions and for a long time”.
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