Greece's creditors agree to $16b aid payout

Euro area finance ministers also set path to debt relief after IMF drops hardline stance

BRUSSELS • Greece's creditors have reached an agreement that will allow the release of €10.3 billion (S$15.8 billion) of aid and committed to ease the nation's €321 billion of debt.

At a meeting of euro area finance ministers on Tuesday, the International Monetary Fund (IMF) stood down from its hardline stance after delaying the payout, having insisted that Greece's programme did not offer a path to fiscal sustainability.

"We, on the part of the IMF, have made a major concession... we had argued that these debt-relief measures should be approved upfront, and we have agreed that they will be approved at the end of the programme," said the IMF's European department director Poul Thomsen, who added that the fund intends to participate in the programme subject to the board's approval. "We all showed flexibility."

After an 11-hour meeting, the ministers agreed to release the much-delayed aid and set a path towards debt relief after the IMF yielded on its stance and allowed an accord to be reached.

Some euro area nations including Germany and the Netherlands, which have elections next year, had resisted the restructuring measures as they are restrained by domestic electorates that have grown weary of helping Greece.

The aid disbursal will include a €7.5 billion portion that will be released next month to cover debt- servicing needs and to clear initial arrears. The rest of the payout will be made after summer.

Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting, said he could not have imagined this agreement being made a month ago.

"The ministers have stretched their political capital to put this on the table," he said.

With Greek Prime Minister Alexis Tsipras accommodating demands for extra austerity and Europe keen not to fuel euro-scepticism in Britain before its referendum next month on European Union membership, the finance ministers lined up behind a package that avoids a repeat of last year's drama in which Greece was pushed to the brink of a euro exit.

The euro area agreed to benchmark its debt analysis of Greece's ability to cover its costs and, as a baseline scenario, wants gross financing needs to remain below 15 per cent of gross domestic product in the medium term and below 20 per cent after that, according to a statement.

The euro area also seeks a medium-term primary budget surplus of 3.5 per cent of GDP, a level which the IMF has previously said Greece would not be able to sustain.

The accord is an "important moment" for Greece and may pave the way for the nation to end its cycle of recession and austerity, Greek Finance Minister Euclid Tsakalotos said.

"This agreement underlines the considerable efforts and the confidence we can have in the Greek government today," French Finance Minister Michel Sapin said after the meeting.

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A version of this article appeared in the print edition of The Straits Times on May 26, 2016, with the headline 'Greece's creditors agree to $16b aid payout'. Print Edition | Subscribe