European governments agreed to release 3 billion euros ($3.9 billion) of aid for Greece, seeking to buy enough financial calm to prevent another debt-crisis showdown until after Germany’s elections in September.
Greece will get 2.5 billion euros this month and the rest in October, as long as Prime Minister Antonis Samaras’s tottering coalition delivers on economic reforms and cuts to spending. It can also count on recouping 2 billion euros in central bank profits on Greek bonds and on 1.8 billion euros from the International Monetary Fund. Bonds advanced today.
European governments led by Germany are continuing to keep Greece on life support, unwilling to let it go bankrupt and exit the euro while doling out aid in the smallest possible doses to avoid upsetting their own taxpayers.
“Greece is on the right track in many ways, but there have been delays in some areas,” German Finance Minister Wolfgang Schaeuble told reporters after a meeting with euro-area counterparts in Brussels yesterday. “It is right to proceed on a cash-on-delivery basis and step by step and make the disbursements as Greece’s financing needs arise.”
Greek bonds rose for a third day, pushing the 10-year yield down 31 basis points to 10.6 percent. The yield has dropped 1 percentage point in the past three sessions. The euro was little changed at $1.2880.
At one point in the talks, ministers considered increasing Greece’s allotment for the third quarter by drawing on 1.8 billion euros earmarked for later periods, two officials said. Dutch Finance Minister Jeroen Dijsselbloem, who led the meeting, didn’t explain why that proposal was dropped, saying the final decision was in line with the previous schedule. A third EU official said Germany led the push to shoot down the proposal.
“More would have always been better, but certain parliaments would have seen it as a change in the program,” Greek Finance Minister Yannis Stournaras said.
Recession, the threat of rising global interest rates and political tumult in Portugal, among the five euro countries tapping aid, raised the pressure on creditors to prevent a financial accident in Greece, the trigger of the debt crisis.
The 17-nation economy has shrunk nonstop since the fourth quarter of 2011. Record 12.2 percent unemployment masks jobless rates as high as 26.9 percent in Spain and as low as 4.7 percent in Austria, splitting Europe between a better-off north and poorer south.
Underlining the fragile state of the economy and persistent threats to the euro’s coherence, IMF Managing Director Christine Lagarde came to Brussels with a report that “the centrifugal forces across the euro area remain serious and are pulling down growth everywhere.”
Germany, the linchpin of the European economy, is trying to avoid a flareup in the crisis as Chancellor Angela Merkel campaigns for re-election in September. The decision means there will be no holes in Greece’s finances “in the foreseeable future,” Dijsselbloem said.
“If there is a financing gap it will be at the end of 2014, which will allow us enough time to deal with it,” he said.
Creditors unlocked the financing after the “troika” of European Commission, IMF and European Central Bank labored through the weekend to seal an accord with Samaras’s government on economic and deficit-reduction steps. The final go-ahead won’t come until later in July, once lawmakers in countries including Germany give their assent.
Greece’s economic outlook “remains uncertain” and the government is behind schedule in making the public administration leaner and more efficient, the troika said. “While important progress continues to be made, policy implementation is behind in some areas,” it said.
The troika gave the coalition a lengthy to-do list, including “concrete steps” to control health-care overspending, income and property tax reform, and politically sensitive cuts in government payrolls, termed “mandatory exits” in the jargon.
Greece has also failed to generate planned revenue from selling state assets. The latest setback came last month, when no bids came in for the national gas company Depa SA.
“Strict conditionality remains the name of the game,” said Paolo Pizzoli, an economist at ING Bank in Milan. “The extent to which the inevitable downsizing of the public sector will prove socially tolerable will also depend on economic developments.”
“Significant further work is needed over the next weeks to fully implement all prior actions required for the next disbursement,” the finance ministers said in a statement.
Lagarde, who was French finance minister at the start of the crisis, said she expects the IMF to supply its portion of the Greek aid, dismissing suggestions that the fund would pull out because of doubts over Greece’s ability to pay its debts.
“We’re not stopping; we’re partners in the program,” Lagarde said.