Greece resolved the latest impasse over the terms of its bailout program with international creditors in the early hours of Tuesday, unlocking the way for debt-relief talks and the disbursement of the next tranche of emergency loans.
Greeks stocks and bonds rallied after the late-night breakthrough that ends months of negotiations with the euro area and the International Monetary Fund. The Greek government yielded to a number of demands including pension cuts and a lower tax-free threshold of around 5,700 euros ($6,221) to 6,000 euros from 8,636 euros now. The agreement will also allow more shops to open on Sundays in various parts of the country.
“The discussion for an agreement that secures Greek debt’s sustainability now begins,” Greek Finance Minister Euclid Tsakalotos told reporters in Athens after the meeting.
Seven years after Greece applied for outside aid, triggering a debt crisis that rippled across the euro area, the country remains heavily indebted and in need of bailout loans. In the latest standoff, Greece needs an installment of about 7 billion euros in aid to repay lenders in a few months, yet some euro-area governments, notably Germany, refuse to pay out until the IMF comes on board. The IMF has said it won’t join the latest bailout program until Greece’s debt burden is eased, in addition to the reforms agreed to earlier Tuesday.
The set of measures now agreed “should allow Greece to receive the funds it needs to stay afloat over the summer,” said Holger Schmieding, chief economist at Berenberg Bank. “Both Greece and its creditors are de facto buying time before talks, including those on the details of debt relief, can advance after the German elections later this year.”
Stocks and bonds jumped in early Athens trading. Yields on 2019 Greek government notes dropped 28 basis points as of 10:35 a.m in Athens, while the benchmark Athens Stock Exchange general index rose 1.5 percent.
If Greece beats its targets, the government will be able to implement a number of offsetting measures to ease the austerity burden, according to an official in Prime Minister Alexis Tsipras’s government who asked not to be named while discussing the program. They include subsidies for rent of as much as 1,000 euros per year, as much as 250 million euros in child support and lower contributions to medication for those of lower income. Collective bargaining for Greek employees will be reinstated starting September 2018, the official said.
Creditor officials are now due to leave Athens to craft the compliance report for a meeting of euro-area finance ministers scheduled for May 22. The report will allow the disbursement of the next tranche of Greece’s 85 billion-euro loan, while the country’s debt-relief measures are expected to be discussed during that meeting. Greek lawmakers will vote on the measures agreed with creditors before the report is completed.
Discussions on Greece’s primary-surplus targets for the years after the end of the program in 2018 are linked to negotiations about the sustainability of the country’s debt, Tsakalotos said. These talks will now be held at finance minister level, he said.