The prospect of Europe’s febrile politics being injected with another dose of Greek summer drama has been averted after creditors signed off on billions of euros of bailout loans that will enable Athens to make imminent debt repayments.
After months of negotiations over the terms of the €86bn (£68bn) rescue programme thrashed out last year, the country’s third, eurozone lenders said Greece had made enough policy progress to warrant the disbursement of further aid.
The €7.5bn in emergency funding is the first payment since 2015, and it has not silenced critics who point to the country’s €320bn debt mountain and say the deal is simply buying time.
For now it ends what the Greek prime minister, Alexis Tsipras, described as a cycle of uncertainty. He said the payment would help to create “a stable macroeconomic, fiscal and investment environment”.
Klaus Regling, who heads the European stability mechanism, the body that oversees Athens’ bailout payments and which officially authorised the aid on Friday, said the money would flow into Greece’s cash-starved coffers next week.
Stocks markets immediately reacted positively. The country’s benchmark ATG equity index rose 3.9% and some bank shares surged more than 10%.
The decision, initially announced at a meeting of eurozone finance ministers on Thursday, was hailed by the EU’s economic affairs commissioner, Pierre Moscovici, as a decisive step that marked the successful completion of a first review of the Greek economy since its financial rescue last year.
“We have arrived at the end of a road that has been long and difficult,” he wrote on his blog on Friday, adding that a year ago the “menace” of Greece’s ejection from the 19-member currency union had been tangible. “This €7.5bn of aid [provides] oxygen for the Greek economy and hope for the Greek people.”
Relieved officials in Athens and Brussels said the cash injection would allow Greece to meet €3.5bn in debt repayments to the European Central Bank next month, avoiding the spectre of default.
Lingering questions over the country’s economic plight – starting with the bitter disagreement between the EU and International Monetary Fund over how to deal with its debt mountain – have, however, engendered widespread criticism.
Many believe a quick fix to the seemingly perennial Greek problem had become necessary ahead of Britain’s referendum on EU membership and a series of pivotal elections elsewhere.
Most of the €7.5bn will be spent honouring debt instalments and government arrears. Almost none will go into reinvigorating Greece’s shattered welfare system or offsetting a recession that, in its seventh year and with GDP down more than 25%, hit depression-era levels long ago.
“This sum is unlikely to make any material difference to the real economy, as the debt obligations of the Greek government amount to approximately €7.2bn between now and the end of the year,” said Mujtaba Rahman, the chief analyst at the Eurasia Group risk consultancy.
Athens may be guaranteed a summer free of drama, but with a second more difficult review in the offing there is growing consent that it is poised for a potentially explosive autumn as Greeks begin to feel the full extent of the savage cuts and tax hikes Tsipras’s leftist-led coalition has been forced to implement in return for the loans.
Social unrest is mounting, highlighted by the thousands of demonstrators who last Wednesday demanded the government resigns, and Tsipras’s once unassailable popularity is taking a pummelling in polls.
Only one in 10 Greeks said they believed the two-party administration, initially voted into office on a anti-austerity ticket, was capable of leading the country out of the crisis, according to an Alco poll released on Wednesday.
Protests are expected to increase when Athens comes under additional pressure after the summer to enforce labour market reforms and other controversial measures linked to a further €2.8bn tranche of aid earmarked for the country. Changes to collective bargaining agreements, which leftists see as hallowed red lines, will be met with stiff resistance from unions, further challenging Tsipras’s once radically leftwing Syriza party.
If that were not enough, demands that Athens achieves a budget surplus before interest payments of 3.5% of GDP are also set to inflame tensions. Under pressure, the Tsipras government was forced to accept it would activate a new set of “contingency” fiscal measures including across-the-board cuts in salaries and pensions in the event that budgets veer off course.
“More trouble lies ahead for Greece,” said Rahman, who believes there is a 40% chance of fresh elections early next year. “This will be driven by difficult negotiations with European creditors over the second review and a fresh set of fiscal measures given the likely activation of the government’s contingency mechanism.”
Amid those fears, the governor of the Bank of Greece, Yannis Stournaras, issued an unexpected appeal this week for a “new deal” that would essentially overhaul the country’s third international rescue programme. “Now Greece needs a new deal with its partners and lenders in order to move forward,” he wrote in the Financial Times.
“It is unrealistic, and socially unattainable, to demand that Greece achieve a general government primary surplus of 3.5% of GDP from 2018 and beyond. This should be lowered to 2%, allowing for a more balanced economic policy mix, with the emphasis on reducing taxation, encouraging private investment and contributing to sustainable growth rates.”