By: DailyForex.com
The Eurogroup of finance ministers have agreed terms for the release of the next tranche of funding to Greece under the nation’s two IMF/EU bailout accords during their third meeting on the subject. The agreement will need to be ratified by national parliaments and it is hoped that the funds can be disbursed by the middle of next month. The payment has been postponed since June.
The agreement will see an additional €40 billion wiped off Greece’s debt and will help efforts to see the Greek debt reduced from its current level of approximately 144% of GDP down to 124% by the year 2020. Greece will also benefit from a reduction in the interest rates on its bailout loans. The interest will be cut by 100 basis points to stand at 50 basis points above the inter-bank lending rate. This move should save the Greeks a further €2 billion over the lifetime of the loans.
The bailouts are jointly funded by the IMF and the Eurozone and a sticking point that emerged had been differences in approach between the two. The IMF had wanted to adhere to the original plan which called for Greek debt to be reduced to 120% of GDP by 2020 – a problem exacerbated by the fact that as the Greek economy continues to shrink, it changes the ratio between debt and the GDP, of course. In the end, the IMF agreed to a softening of the target to124% in exchange for a commitment to push Greek debt to substantially below 110% of GDP by 2022.
Furthermore, Greece’s Eurozone partners have agreed to forego €7 billion owed to the bloc by the European Central Bank from profits that the bank made on its portfolio of Greek bonds which it purchased in efforts to support Athens. These funds should help Greece to lop off a further 4.6% of GDP by the target date.