Greece received a clean bill of health from its international creditors on Monday, securing more rescue aid and prompting its finance minister to say he would ask for much more debt relief if Athens keeps meeting its bailout targets. Athens is on course to contain its debt and pull itself out of a crippling recession next year, the creditors said, adding that the next disbursement of aid to the country, of at least 2.8 billion euros ($3.7 billion), should be approved soon.
The "troika" of creditors - the European Commission, International Monetary Fund and European Central Bank - gave the green light for the aid after Greek authorities gave up their opposition to about 15,000 public sector layoffs, a key condition of its latest bailout deal agreed late last year. "I am very pleased that the government is making a particularly determined effort in this area," the IMF's mission chief to Greece Poul Thomsen said in a conference in Athens. "It has always been a surprise to me ... that it's been such a political taboo to get rid of people who underperform".
The lenders also convinced Athens to freeze plans for a merger between National Bank and Eurobank, respectively its top and third-biggest lenders. The creditors were concerned that the joint bank would become too big to be sold off to private investors after its publicly funded rescue. The deal with its creditors opens the way for another 6 billion to be disbursed in May, Greek Prime Minister Antonis Samaras said. Samaras, who heads a fragile three-party coalition, said the deal showed that Greece was getting out of trouble even as other euro zone countries were getting bogged down in the crisis.
"Until recently, Greece was setting the bad example," he said in a televised statement. "Now Greece is shielded and it's other member states which are facing problems." In exchange for harsh austerity measures that have thrown the Greek economy into its deepest peace-time recession and strained the cohesion of its fragile coalition, Athens plans to ask creditors for a large debt cut.
Athens aims to achieve a primary budget surplus (before debt payments) in 2013, fulfilling one year earlier than planned a key condition to obtain further debt relief from its creditors, finance minister Yannis Stournaras said in the same conference. "The major goal today is to achieve a primary budget surplus (before debt payments) as soon as this year...to ask for a drastic reduction of public debt," finance minister Yannis Stournaras said without elaborating.
The troika has already granted Greece debt relief of about 40 billion euros late last year, through lower interest rates and longer maturities on its rescue loans. It has promised more debt relief, probably by similar means, if Athens secured a balanced primary budget this year and surpluses later. Under its current bailout plan, Greece is supposed to achieve a balanced primary budget this year and post a surplus of 1.5 percent of GDP in 2014.
Athens has already obtained about 200 billion euros of EU/IMF rescue loans since mid-2010 and shaved about 100 billion euros from the value of its existing bonds held by private-sector investors. But it still needs further relief to make its debt viable in the long term. The debt-to-GDP ratio currently stands at more than 160 percent and the IMF said it must be cut to 120 percent by 2020 to be "sustainable".
In its review on Monday, the troika confirmed it was prepared to consider "further initiatives and assistance" to help bring the debt down more rapidly once Greece has achieved a primary surplus. Euro zone finance ministers and the IMF are expected to sign off on the troika review in May. The troika's next review is expected to take place in June. By then, Greece must have carried out its first big privatisations and set out how it will cover a budget shortfall of 2 to 4 billion euros for the years 2015 and 2016. Greece's coalition government has ruled out taking any new austerity measures and hopes that stronger-than-expected recovery will create enough revenue to make up for the shortfall.
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