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| IMF Headquarters, Washington, DC. (Photo credit: Wikipedia) |
After nearly 10 hours of wrangling at their third meeting on the issue in as many weeks, Greece’s international lenders agreed to reduce Greek debt by 40 billion euros to 124% of gross domestic product by 2020 through a package of steps.
We’ve filled the financing gap until the end of program in 2014
The deal opens the way for a major aid instalment needed to recapitalise Greece’s teetering banks and enable the government to pay wages, pensions and suppliers in December.
However, discussions were continuing on details of the measures to reduce Athens’ debt burden.
The euro strengthen slightly against the dollar after news of a deal was reported by Reuters.
“It’s going very slow, but we have financing and a Debt Sustainability Analysis. We’ve filled the financing gap until the end of program in 2014,” one official said.
Greek Finance Minister Yannis Stournaras said earlier that Athens had fulfilled its part of the deal by enacting tough austerity measures and economic reforms, and it was now up to the lenders to do their part.
“I’m certain we will find a mutually beneficial solution today,” he said on arrival for the marathon talks.
Greece, where the eurozone’s debt crisis erupted in late 2009, is the currency area’s most heavily indebted country, despite a big “haircut” this year on privately-held bonds. Its economy has shrunk by nearly 25% in five years.
Negotiations had been stalled over how Greece’s debt, forecast to peak at 190-200% of GDP in the coming two years, could be cut to a more sustainable 120% by 2020.
The agreed figure fell slightly short of that goal, and the IMF was still insisting that eurozone ministers should make a firm commitment to further steps to reduce the debt stock if Athens implements its adjustment programme faithfully.
The key question remains whether Greek debt can become sustainable without eurozone governments having to write off some of the loans they have made to Athens.
A source familiar with IMF thinking said the global lender was demanding immediate measures to cut Greece’s debt by 20 percentage points of GDP, with a commitment to do more to reduce the debt stock in a few years if Greece fulfills its programme.
To reduce the debt to 124% by 2020, the ministers were putting together a package of steps including a debt buyback funded by a eurozone rescue fund, reducing the interest rate on loans and returning eurozone central bank ’profits’ to Greece.
Germany and its northern European allies have so far rejected any idea of forgiving official loans to Athens. ... Continue to read.
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