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Greece clears a path over its mountain of debt | The World Weekly

An apparent breakthrough in talks over Greece’s current bailout package has raised optimism over the government’s chances of exiting the €86 billion ($101 billion) programme in August.

The EU has confirmed that Athens has reached a deal with its international creditors on reforms needed to unlock the next tranche of loans. After seven rocky years of reliance on bailout funding, the left-wing Syriza government is eager to capitalise on signs of a promising Europe-wide economic recovery and regain its financial independence.

Progress in the often contentious talks has boosted optimism on both sides after a difficult year in which Greece narrowly avoided default, though questions remain as to how firmly it can stay the course to regain some form of economic health.

The current bailout, Greece’s third since 2010, was agreed in 2015 in a last-minute move to avoid crashing out of the euro, amid political and economic turbulence that included a three-week bank shutdown and the introduction of strict controls on bank transfers and withdrawals, which still remain enforced.

Each successive tranche of relief has come with conditions from international creditors, who wanted to see concrete changes to the country’s finances before agreeing to hand over their money. But these have often been met with resistance from the government as well as fierce opposition from unions and anti-austerity demonstrators.

Many believe that the agreements reached as part of the latest review will send a signal that Athens is willing to see through the reforms its creditors want to see. 

The latest review also took just three months, compared to over a year for each of the previous two. “The speed with which this deal was reached is a signal that Greece is fully committed to conclude the programme,” an EU official told Reuters.

Officials hailed a “breakthrough” over long-standing issues including the Greek government’s near-monopoly on electricity. The deal means some plants owned by the state energy company will be sold to private investors. Reform of the state healthcare system has also been agreed.

A rocky road

As with previous agreements, however, Greece’s creditors are painfully aware that not all will be plain sailing until August. Trade unions and many public sector officials have vowed to hold up the energy privatisation programme where they can. Residents on the east Aegean Islands, economically crippled by a suffering tourism industry, are fighting a planned hike in value added tax (VAT) from 13% to 24%. 

Athens, meanwhile, has already been hit by violent protests over measures in the agreement that opponents say will limit the right to strike. Demonstrators broke into the labour ministry and forced their way past a cordon to clash with riot police earlier this week. Greece’s main labour unions have called a general strike on December 14 against proposed labour reforms. 

“This government of dirty tricks. It has surprised everyone with its willingness to take instructions from the [bailout creditors],” Communist Party deputy Christos Katsotis told the Washington Post.

The prime minister and his government, however, are unlikely to back down. Exiting the bailout, says Yiannis Mouzakis, co-founder of Greek economics and politics analysis website MacroPolis, “is the only way for Tsipras to regain some of his lost political capital,” allowing him to head into upcoming elections with a narrative “that he managed to lead Greece out of the bailout era as he had initially promised.”

Ultimately, risking a fourth bailout is unimaginable. “There is no appetite in the eurozone to discuss a new programme for Greece,” Mr. Mouzakis told The World Weekly.

Tempting fate

The stakes are high. Exiting the bailout means Greece would stop receiving disbursements from its creditors, forcing it to finance itself through international lending markets alone - something which is only possible if confidence in the Greek economy is sufficiently restored. 

The current bailout package was always due to finish in August, but, particularly after Greece was shut out of international capital markets in 2015, it has long been unclear whether investors would welcome Athens back with open arms.

Alexis Tsipras’ government hailed a tentative comeback in July this year, when it successfully sold bonds on the international market after a five-year hiatus. News emerged last week that it had also completed a successful bond swap, with two more issues to follow by next July if conditions remain favourable. 

The staccato debt sales, however, are no guarantee that Greece will be able to stand on its own two feet come next summer. As a result, Athens is still pushing for a deal to restructure its debt before that in order to guarantee that market access will not be an issue after August  - though this is proving more difficult. 

Some member states, notably Germany, and institutions including the European Stability Mechanism believe Greece’s debt is sustainable enough for the coming years that it is not a priority for restructuring. 

Athens has also raised concerns over Europe’s overall stability in the coming months. Many analysts see Italy’s upcoming 2018 elections as a worrying source of risk, and Greek ministers are painfully aware that Germany’s lack of government means the debt talks cannot continue. 

They are now calling for specific negotiations on how to restructure the debt to get underway. “Greece has done what it was supposed to do and more, and therefore we have to deal with the Greek debt," Dimitris Papadimitriou, Greece’s economy minister, said, adding that “even” Germany’s arch-finance hawk Wolfgang Schaeuble has admitted this.

Even as Greece inches towards financial independence, it is still a long way off, Mr. Mouzakis points out.

“Greece will no longer be dependent on regular disbursements, with the leverage on policy that it gives the country’s lenders,” but will still be subject to a range of requirements, he told The World Weekly. 

Athens will have to stay under “post-programme surveillance” until at least three-quarters of its European loans have been paid off, which take at last 30 years to mature on average. The end of the debt relief will also be conditional on promised reforms being implemented, and existing ones not being reversed in the future, he adds.

As the clock ticks down to August, however, many will be looking beyond the bailout to the long-term prospects of a country whose public debt is still swelling at around 190% of GDP (the eurozone average is around 90% of GDP).

The government’s budget is back in surplus, but pessimists have raised concerns over just how long this can last. The Greek economy was originally projected to grow by 2.7% in 2017. Six months ago, this forecast was reduced to 2.1%; last month, it was cut again to 1.6%.

Exiting the bailout programme could restore international confidence, but it would be just one part of the equation. Many complain of Herculean hurdles faced by those trying to invest in the country, for instance, while some argue the creditors’ demanding fiscal targets are suffocating growth.

Sticking to the reforms and making it out of the relief programme would partly spell the end of the government’s dependence on financing from the IMF and EU lenders. A milestone this may be, but it will still be just one step in a long path back to economic normalcy.

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