The debt relief agreement struck at the Eurogroup meeting puts an end to uncertainty and guarantees Greece’s return to European normality, according to government sources. “The 21st of June 2018 will go down in history as a great day for Greece and Europe. This is recognized by all credible international analysts” the same sources point out.
However, they note that all the above does not mean the country must abandon the reform effort and fiscal balance. “It means thought that Greece is definitely leaving behind the memoranda and austerity for good. It means sacrifices did not go to waste. It means a new dawn for the Greek people” they add.
In detail, Greece’s gains from the debt relief agreement, according to government sources, are the following:
- 10 year grace period for the repayment of its EFSF loan, which means freezing of capital and interest payments until 2032.
- 10 year extension of EFSF loan bond maturities (that is for about 100 million euros). It means that the weighted average maturity of the bonds on this loan rises from 22 to 32 years. These bonds would begin to be repaid in 2023 and begin to expire in 2033.
Cash buffer amounting to 24.1 billion euros
- A 15 billion euro disbursement that will increase the Greek government’s cash buffer to 24.1 billion euros (previous ESM disbursements to be added to funds raised from tapping markets). This means the country’s financing needs are covered for at least the next two years, even in the worst case scenario that new bonds are not issued. Therefore, the government can plan its forays into the markets without any pressure and solely on the criterion of optimal management of Greek debt and not to serve obligations. This development marks the definitive end of the debate on the need for a credit line, as this is already available to state coffers without commitments tied to possible disbursement of funds.
Profits worth 4.8 billion euros returned
- Return of ECB and other Eurozone central banks’ profits, worth 4.8 billion euros, will return to Athens in 4 annual or 8 six-month installments. A prerequisite for disbursing this money is to achieve the objectives and meet the commitments outlined in the Eurogroup decision.
The return, on an annual basis, of 1.2 billion euros to cover growth or other financing needs, will allow for additional budgetary space as the primary surplus target remains at 3.5%, but we will have an annual return of 1.2 billion euros.
No new program
- What commitments are there? Is it a new MoU?
Clearly not. The primary commitment is to achieve the 3.5% primary surplus target through to 2022. The remaining commitments concern the continuation of program reforms, such as the integration of insurance funds, the independence of the Greek statistical authority and the authority for public revenues. Note that there is no commitment to implement fiscal measures. This simply means is only committed to delivering a robust 3.5% primary surplus. The means to achieve this target are now up to the Greek government.
The review process is also finishing. The monitoring of the Greek economy will be carried out via visits by the institutions, who will draft reports that may contain recommendations to the Greek authorities, as is the case with all the other countries that have concluded programs.
- What the agreement achieves
The gross financing needs of the country over the medium term will not exceed 15% through to 2042 and 20% thereafter. This is one of the lowest rates among Eurozone countries.
This way, in the next few years Greece can focus on growth policies without the constraint of having to service its debt, and take a breather in fiscal terms, while at the same time market confidence in Greece credibility is ensured along with a 15-year path for investors to take./IBNA