Greek stocks rallied to two-year highs Friday after the government struck a deal with European creditors that means the country won’t face another brush with bankruptcy anytime soon.
However, for austerity-weary Greeks, the deal does little to lift the pall from years of belt-tightening.
After months of haggling that raised fears of another escalation in Greece’s nearly eight-year debt crisis, the 19-country eurozone agreed late Thursday to release a further 8.5 billion euros ($9.5 billion) from its current, third bailout after the Greek government delivered on an array of reforms. Getting the money was becoming increasingly urgent because Greece has a big debt repayment hump next month.
Extending repayments
With an eye to the longer term, the eurozone creditors also made clear they are ready to ease the burden of Greece’s debt repayments when its bailout program ends next year, possibly by extending repayments by up to 15 years. The International Monetary Fund may also get involved financially, with up to $2 billion, but only if and when it sees the specifics of the debt relief and agrees it can make Greece’s debt bearable.
“I think that’s really the best agreement we’ve had for quite a while,” said Pierre Moscovici, the top economy official for the European Union, the 28-country bloc that includes the 19 states using the euro.
Even though some details remain sketchy, investors breathed a sigh of relief if just on the mere fact that a deal wasn’t postponed, as has occurred so many times previously. The main Athens stock index hit a two-year high, later closing up 0.8 percent on the day. The yields on both the two-year and 10-year Greek bonds fell, reflecting diminished investor fears of the chances of bankruptcy.
“While the deal might have proved the usual exercise in issue avoidance, the fact is that it’s now unlikely that a fresh crisis will emerge in Greece in July,” said Simon Derrick, chief markets strategist at BNY Mellon.
Greece’s left-led coalition government sought to present the deal as favorably as possible, even though the precise nature of the debt relief has to still be ironed out.
“We had a decisive step yesterday,” Prime Minister Alexis Tsipras told the country’s president. “A decisive step for the country’s exit from the long-running crisis.”
Government spokesman Dimitris Tzanakopoulos said Greece’s European creditors had accepted “nearly all the points that the Greek side was asking for.”
The spokesman highlighted the creditors’ acceptance of a long-standing Greek demand that debt repayments be linked to economic growth, meaning that repayments could be postponed if the economy entered recession.
Less optimism
Outside the government, the view was less rosy.
Dozens of protesting hospital workers held a rally outside the finance ministry building in central Athens, building a fake wall outside the entrance topped with a banner reading “They have made us drown in debt.”
Pictures pinned to the fake wall depicted Tsipras, with a tie pinned to his neck. Tsipras doesn’t wear a tie, and had once joked that the only time he would do so would be on the day Greece won debt relief.
Tsipras, elected in 2015 on promises to repeal bailout-related budget cuts, has lost popularity after implementing further austerity measures in return for the bailout money and a promise on debt relief.
As part of Thursday’s deal, the government committed to deliver primary budget surpluses — that is, a surplus excluding the cost of servicing debt — worth 3.5 percent of Greece’s annual gross domestic product until 2022, and 2 percent thereafter each year until 2060. That is a big commitment for Greece, but seems to have been agreed on in principle to show Greece’s debt can be sustained with help from creditors.
Despite years of spending cuts and tax increases since Greece was first bailed out in 2010, the public sector debt burden stands at about 320 billion euros, or 180 percent of GDP. That’s largely because the economy has contracted by around a quarter, meaning a worsening in the relative debt load even though the budget has improved.
An outright cut in Greece’s debt is not allowed under euro rules, but the length of time the country has in paying back its debts can be extended, and the interest rates can be cut. More comprehensive details should emerge in the coming months.
…
