Reprieve as Athens Renegotiates Debt Terms with Troika (2/25)     Print Email

spellmanBy James David Spellman

Eurozone finance ministers extended Greece’s bailout package for four months on Tuesday (February 24) after accepting “reforms” proposed by Athens that are less onerous than what Brussels had originally imposed but more pragmatic than those the ruling Syriza party had just campaigned on.

"The three institutions agreed to start the process with this," Eurogroup president Jeroen Dijsselbloem said, referring to the list of commitments Greece would make in obtaining the extension. "They thought it was a serious enough list and all the countries have just agreed with that in the meeting so we can start."

The proposed reprieve is the first of seven key landmarks this year in addressing the roughly €240 billion due to the “troika” (European Union, the International Monetary Fund, and the European Central Bank). Several parliaments must approve the extension, including Germany’s Bundestag. Tough negotiations lie ahead for long-term economic reforms of Europe’s most heavily indebted country.

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Source: Peter Speigel, Stefan Wagstyl, and Kerin Hope, “Germans rebuff Greek ‘Trojan horse.” Financial Times, February 19, 2015.

Despite the uncertainties and the guarded responses from the IMF and the ECB to the financial rescue deal, equity markets rallied because the imminent banking meltdown had been averted, London’s FTSE 100 set at an all-time record, other exchanges in Europe hit seven-year highs, and the Athens stock exchange posted a one-day gain of nearly 10 percent.

In a six-page document from Greece’s finance minister, Yanis Varoufakis, the Greek government sought to balance commitments to the Eurozone to reign in public spending and overhaul fiscal policies with the need to relax the austerity measures Greeks believe have prevented the country’s economy from rebuilding. Greece will “review and control spending in every area of government spending,” streamline pension policies to address the “excessive rate of early retirements,” modernize tax collection, fight corruption, and phase in a new “smart” approach to collective wage bargaining, These and other initiatives will be conducted to ameliorate the “humanitarian crisis.”

“We call on the Greek authorities to further develop and broaden the list of reform measures, based on the current arrangement, in close coordination with the institutions,” the ministers wrote, referring to the IMF and the ECB.

"It's crucial for the program ... that the laws are being implemented and -- especially important for Greece -- that new or more efficient institutions start working. If all of that is fixed in laws, money will flow," said Thomas Wieser, president of the Eurogroup Working Group.

IMF Managing Director Christine Lagarde said the reforms were "not very specific", that much clearer assurances would be needed on key reforms of pensions, taxation, and privatization. “We consider such undertakings critical,” she wrote. “In quite a few areas, including perhaps the most important ones, the [Greek] letter is not conveying clear assurances.” Specifically, she wrote, there were no “ ‘clear commitments to design and implement’ VAT and pension policy reforms, or ‘unequivocal undertakings’ to continue previously agreed policies to open up closed sectors, on administrative reforms, privatization and labor market reforms.” [1]

ECB President Mario Draghi said, “the commitments outlined by the [Greek] authorities differ from existing programme commitments … We will have to assess whether measures that are not accepted by the authorities are replaced with measures of equal or better quality.” In veiled language addressed to concerns that Greeks will walk away from tax obligations and mortgage debt, "I would also again urge the Greek authorities to act swiftly to stabilize the payment culture and refrain from any unilateral action to the contrary," Draghi wrote.  "This deal is just a stopgap, and nothing has yet been done to tackle Greece’s unsustainable debt position," Jennifer McKeown of Capital Economics said. "A disorderly default and euro exit remains a distinct possibility in future."[2]

In March, Greece faces a shortfall in repayments of its government debt. News reports quote Greek government officials positing two scenarios: issuance of more Treasury bills and a rebate payment by the ECB on interest it earned on Greek bonds.

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Source: Charles Forelle, Pat Minczeski and Elliot Bentley, “Greece’s Debt Due: What Greece Owes When.” Wall Street Journal, February 19, 2015.



[1]Associated Press, “Eurozone backs Greek reforms; key hurdle to extend bailout.” Los Angeles Times, February 24, 2015.

[2]Danny Kemp and Bryan McManus, “Eurozone backs Greece bailout extension.” Agence France Presse, February 24, 2014.