After weeks of delay, Greece’s creditors – the EU, the International Monetary Fund (IMF) and the European Central Bank – have agreed a new aid package for Greece. Athens is now set to receive the €44bn it has long been promised. Greece’s interest rate on its bail-out loans has been cut by 1%, while maturities have been doubled and interest payments deferred for ten years. Greece will also buy back some of its debt at the current cheap price using European aid money, thus lowering the stock of outstanding borrowings.
What the commentators said
Why did the Greek prime minister, Antonis Samaras, hail the deal as “a new day for all Greeks”? asked Ian King in The Times. “All it does is lift the immediate danger of a Greek default.” It’s a fudge to buy time, agreed Nils Pratley in The Guardian, but “with added ingredients”. The creditors have “dug deep into the larder and thrown in everything they could find”. But their store of minor moves, such as deferrals and rate reductions, “is surely now bare”.
Official creditors will eventually have to write off a chunk of Greece’s debts if these are to fall to a sustainable level. But this politically toxic move – states will have to admit to taxpayers that they lost money on a bail-out – is now not likely until German elections next autumn are over. For now, the show goes on, said Pratley.
But haircuts for official lenders are inevitable. Dario Perkins of Lombard Street points out that all the measures in this package amount to debt relief worth 5% of GDP. But Greece is in a debt trap: austerity makes the economy shrink even faster, thus worsening the debt problem. Forecasts of Greek debt next year have risen from 167% of GDP to 189% in just six months. At this rate, said Capital Economics, debt will be 220% in 2020, not 124% as this deal assumes. A “day of reckoning” for Greece and its creditors is inescapable.