The payment of the next tranche of funding under the third of Greece’s bailout loans looks to have been agreed, subject to “technical officials” (and not the dreaded Troika) completing negotiations in the Greek capital, Athens. The third bailout provides a funding cover up to €86 billion. As with previous loans, the third loan was contingent upon economic and legislative reforms that lenders believed Greece needed to set it on a path to a sustainable recovery. The terms required that the lenders be able to monitor compliance with this programme and funding tranches would only be released against the completion of the agreed milestones – which is where the payment delay arose from.
The latest “in principle” deal emerged from a Eurozone finance ministers meeting which was held in Malta. It calls for further reductions in the Greek pension bill from 2019 and boosted income tax receipts from 2020 which will be (in part) achieved by reducing the tax-free income threshold. If it works, the measures will boost Greek finances by 2% of GDP. Naturally, these measures are going to be unpopular in Greece, so it is agreed that Greece will be free to use other measures to stimulate the economy should the nation’s financial position be stronger than currently thought.
Once the technical officials are satisfied, the delayed payment tranche can be released. It would then permit the Eurozone to consider the financial needs of Greece once the third bailout expires in 2018 and the question of debt sustainability. Creditors may soften the debt repayment terms (in terms of interest rate applied and repayment period), but it is politically unlikely that any Greek debt will be written off. The position of the IMF remains that they will only contribute to the third (and presumably any future) bailout if part of the Greek debt will be written off. The IMF is providing technical expertise with the third loan, but is not making a financial contribution to it.