Greece close to sealing loan deal| MENAFN.COM

Monday, 08 August 2022 03:35 GMT

Greece close to sealing loan deal


(MENAFN- The Peninsula) Finance ministers from the eurozone were meeting in Brussels yesterday expecting to give their final blessing to lending Greece up to ¤85.5bn after the parliament in Athens agreed to stiff conditions overnight.

German Finance Minister Wolfgang Schaeuble, long the most powerful sceptic over the merits of giving Greece a third bailout to keep it in the EU's common currency area, voiced optimism as the meeting began that it would end with an accord giving Athens the funds needed to meet a loan repayment next week.

However, some issues still need to be ironed out following a deal struck with Greece on Tuesday by the European Commission, European Central Bank and International Monetary Fund.

Among these are how to deliver some ¤25bn ($27.8bn) in new capital to Greek banks and keeping the IMF involved in overseeing the new euro zone programme while delaying satisfying IMF calls for debt relief for Greece until a review in October.

"I'm actually quite confident that we can reach an agreement today," Schaeuble said in Brussels.

"We have to see that we can get a clear, possibly binding, commitment from the IMF. That's a prerequisite for us but we've always said that has to be feasible. The IMF has its own rules but we will have to find a way."

After debating all night, the Greek parliament gave its backing to leftist Prime Minister Alexis Tsipras, though he had to rely on opposition votes after nearly a third of his own supporters rebelled, forcing him to consider a confidence vote that could pave the way for early elections.

After defeating conservatives in January, Tsipras remains hugely popular for standing up to Germany's insistence on austerity before capitulating to new bailout terms under the threat of a eurozone exit. He would be expected to win again if snap polls were held now, given an opposition in disarray.

The Washington-based IMF, which has lent to Greece itself and played a role in supervising the implementation of two previous bailouts worth a total of ¤240bn, has urged the other 18 states of the eurozone to give Athens debt relief in order to help revive its crippled economy.

IMF Managing Director Christine Lagarde phoned in to the Eurogroup meeting, eurozone officials said, and endorsed the outline deal. Many eurozone governments have ruled out any "haircut" on the nominal amount of debt - something against current euro zone rules - and have questioned the IMF assessment of how much relief Greece needs, saying it is too pessimistic.

However, the bloc is keen to have the IMF, whose imprimatur is prized in financial markets, closely involved in managing the Greek programme. It has agreed to look at easing terms, such as by lengthening repayment deadlines, once a first review of Greek compliance with conditions is completed in October. The IMF, though, has made clear it sees debt relief as essential for giving the Greek economy the means to service the new loans.

It is still unclear how much, if any, of the funds Greece needs will come from the IMF. Under the last, cancelled, programme, Greece was due to receive ¤16bn from the Fund and euro zone states hope for a similar sum.

CATCH 22

"There's a bit of a Catch 22 that we need to solve," said Finnish Finance Minister Alexander Stubb, whose government was among those most ready to favour a Greek exit from the euro before a last-minute deal struck by EU leaders a month ago.

"The IMF wants to be involved only if there is debt relief; we want the IMF to be involved but we don't want debt relief. Some kind of solution will have to be found."

He forecast a three-part solution, starting with agreement on Friday to release funds before Thursday, when Greece must repay ¤3.4bn to the ECB. Then the creditors' institutional representatives would review Greek compliance with their terms - including passing new laws and privatising firms.

Once that was done in October, Stubb said, step three would be "to see how to get the IMF involved".

"The IMF is on board as concerns programme conditionality," said Valdis Dombrovskis, the European Commission's vice president for the euro.

On Thursday, Delia Velculescu said after leading the IMF team at negotiations in Athens: "We look forward to working with the (Greek) authorities to develop their programme in more detail and for Greece's European partners to make decisions on debt relief that will allow Greece's debt to become sustainable.

"The IMF will remain closely engaged with the Greek government and the European partners to assist in this process, and will make an assessment of its participation in providing any additional financing to Greece once the steps on the authorities' programme and debt relief have been taken."

EU officials estimate Greece needs ¤23bn this month alone to service debts as well as to provide about ¤10bn to recapitalise banks ravaged by turmoil and the imposition of capital controls in June.

How to deal with the banks is another key issue facing the finance ministers, as is the handling of revenues from the privatisation of Greek state assets.

"There are some worries about recapitalising banks which could be very expensive, the privatisation fund and a third issue is the involvement of the IMF which is important for many countries," meeting chairman Jeroen Dijsselbloem said.


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