Greece is on track to receive vital bailout funds, after its international creditors narrowed their differences in a long-running dispute about the country’s vast debt mountain.
Eurozone finance ministers appeared ready on Thursday to unlock €8.5bn (£7.4bn) from the Greek €86bn bailout fund to help Athens make a repayment due in July, although specifics on long-term debt relief are likely to be fudged.
The disbursement ends months of deadlock between Greece’s creditors, but is unlikely to diminish fears that the recession-ravaged country faces years of austerity.
Eurozone officials advised ministers meeting on Thursday to offer €8.5bn, an EU source told Reuters in Luxembourg. That amount would exceed earlier proposals.
After months of delay, the eurozone indicated it was ready to release the funds, as the International Monetary Fund appeared to back down over its refusal to get involved – a point that had blocked further loans.
The Washington-based IMF had refused to take part in this third Greek bailout until European creditors agreed on far-reaching proposals to ease Greece’s debt burden. Germany had led resistance to further moves on debt relief, but blocked releasing this latest money without the IMF on board.
After months of dispute, the IMF director, Christine Lagarde, suggested last week the fund could get involved “in principle” but would not pledge any of its own money until the end of the current bailout programme in 2018. The IMF contribution to Greek bailout coffers is expected to be limited, but European governments see the IMF as a tough broker that will push Athens for reforms and lend the country’s bailout electoral credibility.
Having the IMF on board is seen as a litmus test for the Bundestag, which has to approve loans to Greece.
Hopes of a breakthrough rose when the German chancellor, Angela Merkel, in Berlin said she was confident Greece would “be rewarded for its efforts”. Arriving for the talks in Luxembourg, the Greek finance minister, Euclid Tsakalotos, summed up his feelings tersely: “Optimistic”, he said.
Greece’s leftwing government, which has pushed through unpopular pension cuts and tax increases to secure the funds, is very likely to be disappointed that it is still waiting on a specific number on debt relief. Although the economy is growing again, more than one third of Greeks are estimated to be at risk of poverty.
Eurozone ministers were expected to stop short of naming a figure for measures to ease Greece’s debt burden, which totals €314bn – or 180% of economic output. “There won’t be a figure that rolls out,” said Jeroen Dijsselbloem, the Dutch finance minister who is the Eurogroup president. “The figure will only come at the end of the programme.”
Despite detente between the creditors, the IMF and the eurozone are expected to remain at odds over the long-term prospects for the Greek economy. IMF officials do not believe EU assumptions that Greece can run a budget surplus (minus debt servicing) of 3.5% for years to come.
The IMF wants to the terms of the Greek debt to be eased, by extending repayment holidays and deadlines. Creditors agreed on short-term debt relief last year, but the IMF had been pressing for specifics on the long-term. It has previously warned that Greece’s debts could spiral to 250% of GDP by 2050 without help.
Before the meeting on Thursdays, the creditors sounded optimistic about reaching a deal, while Greek sources warned that an agreement was hanging in the balance. The Greek prime minister, Alexis Tsipras, told his cabinet he would take the problem to an EU leaders’ summit next week if there was no agreement.