Greece Commits to Repay IMF, Tones Down Debt Relief Rhetoric

Eurozone Leaders And European Finance Ministers Hold Emergency Greek Summit

Alexis Tsipras, Greece's prime minister, gestures while departing after an emergency Greek summit with European leaders in Brussels, Belgium, on Tuesday, July 7, 2015.

Photographer: Jasper Juinen/Bloomberg

Days after missing debt payments to the International Monetary Fund and the Bank of Greece, Prime Minister Alexis Tsipras’s government said it intends to clear its arrears, as it sought additional funds from the euro area.

“Greece is committed to honor its financial obligations to all its creditors in a full and timely manner,” the government said in a letter to the European Stability Mechanism, asking for a new three-year loan from the currency bloc’s crisis fighting fund.

Greek PM Office
Greek PM Office

This is the government’s second such request since its bailout expired on June 30, the same day it became the first advanced nation to miss a payment to the IMF. While in both letters the government asked for financial support to meet debt payments over the next few years, there are subtle differences in both language and substance.

The previous request was submitted by Tsipras on June 30 and asked for a two-year loan. This time the letter, which the government says “supersedes our previous request,” was sent by newly appointed Finance Minister Euclid Tsakalotos and is for a three-year loan facility. The new letter is longer and includes a commitment to pursue “a comprehensive set of reforms,” including tax and pension reforms, as early as next week that was absent in the earlier request. It also doesn’t set an amount for the financing needs, which the June 30 letter put at nearly 30 billion euros through the end of 2017.

Softer Language

More importantly, the government has softened its demand for a debt restructuring. It no longer asks that debt held by the euro area’s temporary rescue fund “be restructured and re-profiled,” as in the first letter. The new request says instead that “Greece welcomes an opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term.”

Gone is also a list of reasons for the request that sought to place blame for Greece’s pressing financial needs solely with the creditors. In the June 30 letter, the government cited the fact that the country had received no aid disbursements since July 2014, the absence of a deal for an extension of the previous bailout program, and liquidity restrictions by the European Central Bank on the country’s banks as the reasons for imposing capital controls and asking for further aid.

The government hints that the bill may have gone up since its last request, due to the deteriorating situation of the banking system. “The Loan will be used to meet Greece’s debt obligations and to ensure stability of the financial system,” Tsakalotos writes in the letter.

Clearing Arrears

Greece also commits to honor all debt obligations, including clearing outstanding arrears to the IMF and the Bank of Greece.

Greece failed to make bundled payment of about 1.5 billion euros to the Washington-based institution on June 30, prompting the euro area’s crisis fund to declare that the country is officially in a state of default. The government also failed to make a payment of about 470 million euros to its own central bank on the same day.

The revised Greek application for a third bailout will be reviewed by the so-called Euro Working Group of finance ministry officials Wednesday, as well as the currency bloc’s finance ministers. A more detailed list of proposals “for a comprehensive and specific reform agenda,” will be laid out by July 9, so that it can be assessed by the ECB, the European Commission and the IMF, the letter says.

The three institutions will present their assessment to euro area finance ministers, who will review it before a European Union Summit on Sunday.

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