The Strategist

Greece persuaded the European Commission to unlock the key tranche of € 10,3 billion

05/25/2016 - 13:11

EU ministers have reached an agreement on the allocation of € 10,3 billion to Greece. Besides, they decided to mitigate a number of conditions for further assistance. This agreement has already been called a breakthrough in the negotiations with Greece, as the main condition for the release of a new tranche would be performance of commitments for the anti-crisis reforms by the new Greek government.

EU finance ministers reached an agreement after the toughest 11-hour talks in Brussels. President of the Eurogroup and the Netherlands Finance Minister Jeroen Dijsselbloem commented the meeting on his Twitter: «We have achieved a breakthrough that allows us to begin a new phase of the financial assistance program for Greece." Under the agreement, Greece will receive € 10,3 billion in two tranches - the first, in the amount of € 7.5 billion, will go in June, before Greece will transfer € 3,5 billion of the ECB's debt in July.

The agreement is important not only because Greece desperately needs these funds to support its economy afloat. The tranche and the continuation of negotiations have been linked with the position of the Greek government, led by Alexis Tsipras. As we know, last year, Alexis Tsipras won the elections thanks largely to allegations that Greece should cease to be humiliated in front of international creditors. Tsipras insisted that the country should have declared its opposition to the austerity measures, which, according to him, the EU and the IMF thrusted on Greece. But last year, the economic situation has become so severe that Alexis Tsipras’ government started to gradually change its electoral rhetoric and ended up on carrying out anti-crisis measures recommended by the international lenders. According to results of the yesterday's meeting, EU finance ministers noted the progress in reforms on reduction government spending, and attracting additional funds in the budget by raising the VAT tax on coffee and tobacco. In addition, on Sunday the Greek parliament approved creation of a special privatization fund, which will gather money resources derived from sale of shares in the large state-owned enterprises and infrastructure facilities to private investors. Progress has also been made in adoption of laws that allow Greek banks to select and sell bad debts more easily. 

In addition, the European media have noted that during the negotiations, both the IMF and the Greek government showed a desire for constructive negotiations and compromise. Financial experts positively evaluated the agreement on Greece. Barclays Capital’s analyst Francois Cabau notes that the Eurogroup committed itself to do everything "for Greece to avoid any stress in the future, including the British referendum on staying in the EU."

The reaction of the markets to the agreement on Greece followed immediately: this morning, key stock indexes in Europe gained 0.5-1%. In addition, the yield on Greek ten-year bonds fell below 7% and reached 6.98% for the first time since November last year.


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