If approved by eurozone finance ministers at a meeting later this month, the agreement will mean Greece’s third bailout, worth €86bn, can progress to the next stage starting with the release of much-needed funding.
Announcing the preliminary agreement, Greek finance minister Euclid Tsakalotos said the deal could also pave the way for talks with creditors on relief for Greece’s massive debt pile.
It follows progress made last month when bailout staff settled on the “size, timing and sequencing” of key future reforms.
Athens has agreed to cut pensions – reportedly by an average of 9% according to news agency ANA – in 2019 and the tax-free threshold in 2020, producing savings worth 2% of GDP.
If the economy continues to smash through the bailout’s targets, Greece will be able to use the funds raised via the additional austerity measures to offset their impact and reduce poverty.
The agreement also entails reforms to open up the energy market to greater competition and a pledge that Greece will sell off coal-fired plants and mines, equal to around 40% of capacity, at its state-owned power utility.
Athens will have to bring the measures into law in the coming weeks, ahead of the critical Eurogroup meeting at the end of the month.
It is expected the meeting will also see the disbursement of the next trance of bailout funds for Greece, needed to make loan repayments in July.
However Greek prime minister Alexis Tsipras said in April that he would not apply the reforms without the promise of debt relief for Greece, enabling it to benefit from the European Central Bank’s quantitative easing programme, and a schedule of attainable fiscal targets.
Those two factors are also key to the International Monetary Fund, which insists the country’s debt burden, worth 179% of GDP on a cash-accounting basis, is unsustainable and has so far declined to participate in the third bailout as a result.
Greece’s major European creditors, however, are reluctant to discuss further debt relief amid the bailout’s growing unpopularity in their own countries. They are also more optimistic than the IMF on what Greece can achieve fiscally, and argue a surplus target of 3.5% of GDP should remain in place for an unspecified number of years after the bailout ends in 2018.
The fund disagrees. European creditors need the IMF on board, however, as they believe it will give the bailout some much-needed credibility.
Despite today’s agreement, these two contentious issues remain unresolved and will be left until the Eurogroup meeting at the end of the month or perhaps beyond.
