The Strategist

Financial freedom for Greece: The country completes the third bailout program

08/21/2018 - 15:29

Greece officially left the assistance program. The country was the last of the four euro area states, which received financial support from its neighbors in the monetary union. Almost € 290 billion was invested in the fight against the Greek crisis in just eight years. Now Greece will have to pay its own debts. At the same time, the EU will continue to monitor the progress of the Greek reforms, which are a condition for deferring payments on already allocated loans.

Greece has successfully completed the third three-year financial assistance program and is now free of the external management of foreign creditors, under which it stayed since 2010. This was reported on Monday by representatives of the European Stability Mechanism (ESM, the creditors sent tranches to Athens through this fund). According to Pierre Moscovici, the European Commissioner for Economy and Finance, a "new life" starts for the Greeks after eight crisis years. For the euro area, the completion of the program was a "symbolic line under the talk about the existential crisis of the monetary union."

"Greece has now become a normal country in the euro area. We will not discuss it at every meeting of the Euro group, and we will not impose reforms on it. However, just like all other countries of the Eurozone, it must submit its draft budget twice a year for approval by the European Commission," the European Commissioner explained. In addition, European lenders will continue to quarterly check the progress of reforms in the country, and this will depend on granting a deferral for payment of debt. If the terms of the program are met, the country will be able to transfer payments on previously received loans beyond the year 2032.

According to the ESM, Greece received € 61.9 billion in total under the third aid program (another € 24.1 billion of the maximum available € 86 billion remained unclaimed). In total, the amount of concessional loans granted since 2010 reached € 288.7 billion (€ 256.6 billion from European creditors and € 32.1 billion from the International Monetary Fund). The funds allocated in 2010 were not enough. In two years, private creditors had to write off € 107 billion of Greek national debt. This became a condition for launching a second aid program, without which the country would find itself in a situation of default. However, the SYRIZA party led by Alexis Tsipras came to power in January 2015, the government refused to cooperate with the top three creditors and demanded writing off most of the debt. However, six months later, amid a sharp deterioration in the financial situation in the country, Athens made concessions and signed in a third assistance program for a period of three years (the ESM approved allocation of the last tranche of € 15 billion on August 6 this year).

It should be noted that another three countries in the euro area - Ireland, Portugal and Cyprus – asked for only one financial assistance program, after which these countries returned to foreign borrowing markets. According to the head of ESM Klaus Regling, the crisis in Greece was more serious and was accompanied by errors of the authorities: in particular, refusal of reforms in 2015 cost € 86-200 billion. "The scale of problems in Greece was much greater than in any other country. In addition, the country's management and ability to implement treforms agreed in the adjustment programs were much weaker," Regling noted.

Last year, Greece finally recorded a primary budget surplus (before interest payments on debt) of 4.2% of GDP (the deficit was 15.1% at the peak in 2009), and the growth rate of the economy again became positive (the indicator will increase to 2% in 2018-2019 from 1.4% % in 2017, according to a forecast of the European Commission). However, according to the IMF, the European Commission is too optimistic about the ability of Athens to maintain high growth rates and budget surplus year after year. Earlier the fund warned that the level of debt could become unstable in future, since after 2038 its maintenance costs will go beyond the threshold of 20% of GDP and will only be increasing, which again will require writing off part of the load.