Once again, the euro area and the International Monetary Fund are wrestling with how to get Greece to pay what it owes without crushing the economy. The country’s creditors reached a deal Wednesday to keep the current bailout program -- the third since 2010 -- flowing, while putting aside the thornier issue of how much to ease the burden.
1. Haven’t we been here before?
Yes. Greece rocked global markets last year when it voted in an anti-austerity government determined to rip up the terms of its bailout agreements with other euro-area nations and the IMF. Under the threat of being kicked out of the common European currency, Prime Minister Alexis Tsipras caved and has spent the past year passing measures he was first elected to oppose, including cutting pensions and increasing taxes.
2. What’s next?
The agreement to release 10.3 billion euros ($11.5 billion) means Greece will be able to make a scheduled debt repayment in July. The IMF will weigh whether to join the bailout, as Germany, in particular, has demanded. That debate is sure to raise contentious issues. The head of the IMF’s European department wrote in February that Greece’s pension system “remains unaffordably generous,” even after two rounds of reforms. Long-term debt relief for Greece won’t be considered until the current bailout ends in mid-2018, following 2017 elections in Germany, where the bailouts have been unpopular with taxpayers.
3. What are financial markets saying?
The yield on Greece’s 10-year bond fell below 7 percent for the first time since November. It traded as high as 11.6 percent in February.
4. What’s at the heart of the dispute?
On one side are Greece’s euro-area creditors, led by Germany, which want Greece to run large budget primary surpluses -- 3.5 percent -- so that it can keep up its debt repayments. IMF Managing Director Christine Lagarde has dismissed as “far-fetched fantasy” the notion that Greece could maintain such a surplus for a decade. The IMF has proposed giving Greece a grace period until 2040 on all bailout loan repayments.
5. Could Greece still leave the common currency?
While the heat is off for now, support for sticking with the euro may be softening. A recent poll found 54 percent of Greeks with positive views on the currency, down from 66 percent in October. Four years after the biggest sovereign-debt write-off in history, relief has proved elusive because Greece’s economy is shrinking faster than its debts.
The Reference Shelf
- A Bloomberg QuickTake on how Greece’s battle against austerity took it to cliff’s edge
- A column by Leonid Bershidsky on why the deal on Greece is “a permanent fudge,” not a “major breakthrough.”