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Greece crisis declared 'over' after eurozone debt relief, but IMF has 'concerns'

Anna Isaac
Greek Finance Minister Euclid Tsakalotos, right, speaks with European Commissioner for Economic and Financial Affairs Pierre Moscovici during a meeting of eurogroup finance ministers - AP

A deal has been struck on Greek debt relief by European leaders, heralding the end of the eight-year bailout effort which followed the financial crisis.

The country is set to exit from its bailout programmes in August this year, and it will no longer receive new funds from outside sources.

The fresh deal allows Greece to put off the repayment of nearly €100bn of debt by a decade, equivalent to 40pc of the debt which it owes the eurozone. This is only part of the nearly €280bn that Athens has received in funds since 2010.

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Germany put up last minute resistance during talks, adding six hours to the debate. The country, the biggest single Greek creditor, has been the driving force behind fierce austerity measures in Greece. These have included cuts to pensions and wages as well as tax hikes.

Austria joined Germany in a refusal to grant Greece any further leniency, and reinforced calls for Greece to continue reform efforts. In 2009, Greece had the highest budget deficit in Europe at more than 15pc of GDP. Since 2016, there has been a small surplus.

"We will ensure that the pressure to implement further reforms remains strong... in the medium and long term," said Austrian finance minister Hartwig Loger.

The deal was agreed at a meeting of eurogroup finance ministers at EU headquarters in Luxembourg on Thursday Credit: AP

There have been three tranches of bailout funds for the Greek economy. The most recent, agreed in 2015, was worth €86bn.

The International Monetary Fund, the world’s lender of last resort did not take part in the third bailout, castigating the eurozone for not allowing some writing-off of Greek debt. The country’s debt mountain stands at some 180pc of GDP, a figure which the IMF believes is unsustainable in the long term.

Germany, and others, have refused to allow their taxpayers to foot the bill for writing down Greek debt. By contrast, private creditors cut the value of their bond holdings by more than half in 2012. This wiped out almost €107bn of debt.

France and the European Central Bank joined the IMF view that some debt reduction rather than better payment terms was necessary to ensure a sustainable return to financial markets for Greece.

This issue of risk sharing cuts to the heart of plans for further eurozone integration. These include mechanisms for taxation and spending and the introduction of a rainy day fund.

The draft plans, devised by France and Germany earlier this week, retained a strict commitment that any country lent money by eurozone partners would have to repay the funds.

According to EU economic affairs commissioner Pierre Moscovici, speaking after the Greek talks the country's crisis was now over. "The Greek crisis ends here tonight," he said.

However, Christine Lagarde, managing director of the IMF said the institution still had “concerns” about the long term future of Greece.

Ms Lagarde said: “The additional debt relief measures announced today will mitigate Greece’s medium-term refinancing risks and improve its medium-term debt prospects, both of which are very welcome results.”

Managing Director of the International Monetary Fund Christine Lagarde waves as she arrives for a meeting of eurogroup finance ministers at EU headquarters in Luxembourg Credit: AP

“We also take note of the commitment by Greece’s European partners to keep debt sustainability under review and to take additional debt relief measures if needed. This would provide important safeguards if the more optimistic long-run macroeconomic assumptions of the European institutions were not realized.”

Greek finance minister Euclid Tsakalotos said after the talks that he was “happy”.

However, he added that to make the whole process of reform worthwhile, Greeks needed to “feel the change in their pockets”.