Greece obtains $13b new loans but woes not over

Greece's creditors on Thursday agreed to release new loans for Athens, capping a key chapter of the country's bailout and ending months of uncertainty over whether it could meet large bond payments due next month. But it was not enough to get the IMF
Greece's creditors on Thursday agreed to release new loans for Athens, capping a key chapter of the country's bailout and ending months of uncertainty over whether it could meet large bond payments due next month. But it was not enough to get the IMF to acknowledge the debt is sustainable.PHOTO: BLOOMBERG

LUXEMBOURG • Greece's creditors have agreed to release €8.5 billion (S$13 billion) in new loans for Athens, capping a key chapter of the country's bailout and ending months of uncertainty over whether it could meet large bond payments due next month.

Thursday's decision came after euro-area finance ministers sought to offer more clarity on Greece's future debt path and outline possible measures they could take to ease its burden in the future. Meeting in Luxembourg, they reinforced their commitment to extend Greece relief if needed and offered more specifics on what this could entail. But they stopped short of providing definitive steps, which they said would only come at the end of the bailout in mid-2018.

The news sent the Athens Stock Exchange to a two-year high yesterday. "It's a very constructive decision that will help Greece, also on the international market, to gradually get more credibility," Luxembourg Finance Minister Pierre Gramegna said.

Still, the compromise leaves Greece with less than what it had sought, as it was not enough to get the International Monetary Fund (IMF) to acknowledge the debt is sustainable. The fund will consider signing off on a 14-month-long credit line for Greece, but only dole out fresh loans once it gets more assurances from the euro area on debt-relief measures.

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IMF chief Christine Lagarde said she will propose the "approval in principle" of a new precautionary stand-by arrangement likely in the range of US$2 billion (S$2.8 billion) that would depend on debt-relief measures materialising.

"The bottom line is that, although default was averted, no measures were taken that would create a path leading Greece to financial markets," said economics professor Nicholas Economides at the Stern School of Business, New York University. A fourth loan agreement in 2018 seems likely, he said.

An explicit IMF recognition that Greek debt will become sustainable could have cleared the way for the country's bonds to be included in the European Central Bank's quantitative easing, which would cut borrowing costs and ease its return to the market.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 17, 2017, with the headline 'Greece obtains $13b new loans but woes not over'. Print Edition | Subscribe