E.U. Reaches Debt Deal for Greece Worth 8.5 Billion Euros

E.U. Reaches Debt Deal for Greece Worth 8.5 Billion Euros

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Christine Lagarde, the managing director of the I.M.F., said she was prepared to recommend joining the bailout even though work remained on how to ease Greece’s debt burden. “I hope that the discussion over specific debt relief measures can soon be brought to conclusion,” she said.

Ms. Lagarde said she would formally recommend participation in the bailout of as much as $2 billion on what she described as a standby basis.

The difficulty in completing a deal has centered on a long-running showdown among creditors. On one side, several eurozone countries led by Germany want Athens to carry out what they view as reforms before specifying debt concessions that could take effect next year at the earliest. On the other, the I.M.F., with policy makers in Brussels and the Greek government, has been pushing for immediate commitments on the details of eventual debt relief.

The standoff has highlighted the problems of managing the sprawling 19-nation area that uses the euro, and is occurring despite recent signs that regional leaders had tamed crises that have plagued the monetary union for much of the last decade.

Greece, which has been on international financial life support since 2010, has been in recession on and off for years. In that time, its economy has shrunk by nearly a fifth, and unemployment now stands at slightly less than 25 percent. The latest tranche of money is part of an €86 billion bailout, Greece’s third rescue since the crisis erupted.

Despite the high stakes, the agreement to provide Greece with the latest funds came down to the wire. Greece reached a preliminary deal with representatives of its creditors more than a month ago to release the money, suggesting that an agreement was all but done. And while it could have pushed for an emergency meeting at a European Union summit meeting next week, that would have been a last-minute gamble.

On Thursday, Greece was offered bailout money above its immediate needs to service its debt. It also received some clarity about eventual measures to ease its debt burden in the medium term.

Those measures included extending the final due dates on some Greek debt for as long as 15 years, to around midcentury, to make it easier to pay.

In another concession, the Eurogroup formally agreed to a longer-term French plan to link the scale of Greek bond repayments to the country’s economic growth, though it said details still needed to be fleshed out.

While eurozone leaders appear to have avoided the short-term threat of a Greek default, much remains at stake politically for the Greek and German governments.

Explaining Greece’s Debt Crisis

European authorities have agreed to disburse $8.4 billion in fresh funds to Greece, allowing the country to keep paying its bills in the coming months.


Germany, the eurozone’s largest economy and its de facto leader, will hold national elections in September, and its leaders, including the hard-line finance minister, Wolfgang Schäuble, have shown little desire to be specific about what concessions Greece was promised. Along with their counterparts in the Netherlands, German politicians are wary of the domestic consequences of appearing to ask German taxpayers to foot the bill for largess to Greece.

As a result, forgiving even part of Greece’s debt is off the table. Further adjustments to repayments, such as extending the deadline, remain extremely unlikely this year.

For Alexis Tsipras, Greece’s left-wing prime minister, the goal has been to win pledges from lenders that will help restore jobs and growth to a battered national economy. Greece has already made several rounds of painful austerity measures, repeatedly cutting government spending and pensions, hitting ordinary people hard.

Lenders must “respect Greece” by laying out a clearer pathway to growth, Mr. Tsipras wrote in an op-ed article published this week in the French newspaper Le Monde and the German daily Die Welt. A separate statement from his office said, “the whole planet knows that it is the creditors’ turn to honor their commitments.”

Euclid Tsakalotos, the Greek finance minister, told a news conference on Thursday that he had agreed to the deal because it offered a degree of guidance on how Greece would bring its debt under control.

“Is it as much clarity as the Greek people deserve after all the reforms that have been carried out, and all the sacrifices that have been made?” Mr. Tsakalotos said. “Perhaps not. But we recognize that we do not want the perfect to be the enemy of the good.”

Crucially, Greek leaders now want their country’s debt to be eligible for the European Central Bank’s huge bond-buying program. That effort, known as quantitative easing, has sought to inject cash into the eurozone economy and bolster growth. Including Greece’s bonds in the list of loans eligible to be purchased would help restore investor confidence in those bonds.

The European Central Bank has said it will consider buying Greek bonds only if it concludes that Greece’s debt load is sustainable.

The central bank has not said how it defines sustainable, but a stamp of approval from the I.M.F. is probably a prerequisite.

The agreement on Thursday “is a first step toward securing debt sustainability,” said Peter Ehrlich, a spokesman for the European Central Bank. Mr. Ehrlich declined to say when the bank might decide about including Greece in the asset-buying program.

Over time, I.M.F. involvement has become a crucial issue, and the fund remains concerned that Greece may never be able to repay its enormous loans, which are equivalent to about 180 percent of the country’s gross domestic product. The fund had been withholding its participation in the latest bailout until European countries offer concrete promises of debt relief.

Berlin has dug in its heels against such a promise. It is wary that offering concessions could slow the pace of economic reform in Greece, and fears that such moves could have political consequences in Germany.

The debate has increased tensions between Greece and Germany.

In an interview published on Thursday, Greece’s economy minister, Dimitri B. Papadimitriou, accused Mr. Schäuble of being “dishonest,” and said that Athens was “being made a sacrificial lamb.” Greece’s government spokesman, meanwhile, said Mr. Tsipras, the prime minister, did not trust that “a body in which Schäuble participates can offer a positive solution to Greece.”

Ms. Lagarde, the I.M.F. managing director, said her decision on Thursday to approve the money in principle “allows for more time for negotiations to be concluded on the required debt relief.”

Disbursement of the money would follow only with final agreement on the manageability of Greece’s debt, she said. The pledge by the I.M.F. was important in avoiding “the crisis that we would have otherwise had mid-July, had this not happened today,” she said.

Ms. Lagarde said Greece still had a “continued promise of debt relief.” The standby arrangement was “a second-best solution — and it’s not a bad solution,” she said.

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