Breathing space for Greece

German Finance Minister Wolfgang Schaeuble at a conference in Frankfurt, 23 November   German Finance Minister Wolfgang Schaeuble is seen here at a conference last week

Greek Prime Minister Antonis Samaras has declared a "new day" for his troubled country. He believes that on Monday night in Brussels he won a much better deal than he could have hoped for when he came into office a few months back.

Firstly, the possibility of Greece leaving the euro in the short term is off the table. In all but name it had been since August when German Chancellor Angela Merkel decided to stick with Greece.

With a German election due next year, she was not prepared to countenance the uncertainty of a Greek exit.

Now Greece will start receiving more than 40bn euros (£32bn; $51bn) in loans as part of its bailout deal signed earlier in the year. Without this funding, the country had faced bankruptcy.

The money will be in instalments and more than 23bn euros will go towards re-capitalising the Greek banks.

That has proved the easy part of the deal. Greece was judged to have been "serious about its reforms".

The much trickier question was whether Greece was on a sustainable path. The target had been for Greece to reduce its debt to GDP ratio to 120% by 2020.

No one really believed that was possible. Greece's debt is currently about 180% of national output and rising.

It was the IMF which introduced a note of reality.

IMF lead

Under its own rules, it cannot continue supporting a programme unless there is reasonable chance established targets will be met.

In the case of Greece, the IMF did not believe that was possible. The head of the IMF, Christine Lagarde, essentially said to Europe's finance ministers that Greece's debt had to be reduced and some of it written off.

IMF chief Christine Lagarde in Brussels, 26 November IMF chief Christine Lagarde argued the Greek debt had to be reduced

So there is now agreement to reduce Greek debt by 40bn euros. The interest rates on its loans will be cut and the repayment dates extended.

The central banks will forego profits on their holdings of Greek debt. The new target will be for Greek debt to be 124% of its GDP by 2020.

The IMF says, however, that much more will have to be done. It believes that eurozone governments will have to take a hair cut and accept a write-down on their loans.

That would have involved politicians having, for the first time, to tell their tax-payers that they would not get all their money back on their loans to Greece.

The German government was not prepared to countenance that ahead of an election.

However, German Finance Minister Wolfgang Schaeuble accepted that, later down the road, there could be debt relief if Greece completed its adjustment programme and no longer needed new loans.

And that is the big question: will this deal remove uncertainty over Greece's future and allow for confidence and investors to return?

Breathing space

Greece has had to sign up to a raft of new austerity measures. Some of them will not kick in until 2013/2014. They will further reduce demand in an economy that has shrunk 25% in five years.

Most of the forecasts have been wrong when it comes to Greece.

They have consistently under-estimated the impact of austerity on the real economy. It could still be that, in a couple of years, the economy has deteriorated further with the social fabric disintegrating.

Then - after the German elections - the big questions will have to be faced: should a substantial chunk of Greek debt be written off? Should the country get a third bailout? Will Europe tire of its Greek odyssey?

Greece has been granted another breathing space. There will be no "Grexit" - no Greek exit. The markets should like that.

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  • rate this

    Comment number 198.

    margaret howard
    Lapsus memoriae Margaret? or just looking the other way?

  • rate this

    Comment number 197.

    @196 I could refer to Algeria, Indochina and other (ex) French colonies for starters. That France hasn't been involved in major wars recently doesn't mean that there are no more French dirty tricks in especially former French Africa- we simply don't hear about them. Why do you think the French still have the Foreign Legion- for nostalgic reasons?
    And could we stick to the topic please?

  • rate this

    Comment number 196.

    195 Bumstead

    1985? You relly had to dig deep there.

    I'm talking about the here and now! Don't know how you can even compare this event nearly 30 years ago to what goes on now in those poor benighted countries.

    And the world does nothing but look on. What other countries could get away with that? The minnows get caught and punished while the sharks go free.

  • rate this

    Comment number 195.

    @194 May I refresh your memory? Does "Rainbow Warrior", Auckland N.Z. 1985 ring a bell?????

  • rate this

    Comment number 194.

    186 DavidUS

    "France has long set the tone for corrupt administration, big spending and the milking of prudent countries that now dominates EU thought.
    France is a disgrace"

    Are you sure you've got the right country?

    You wouldn't rather be looking at somewhere closer to home?

    I can't remember France starting illegal wars, assassinations, drones Guantanamo style 'prisons' etc

  • rate this

    Comment number 193.

    Every time we vote for a politician which does not challenge unelected bureaucracies and unaccountable quasi-government organizations which manipulate markets, we get what we deserve - a road to serfdom.

    Today we rarely see politicians seriously putting the the EU gravy train, run by the Bisto Kids (Barosso, Rumpouy, Junkers, Ashton, Barnier ...) under the spot light.

  • rate this

    Comment number 192.


    The moment of truth will come after the German elections in 2013,
    Angela bought time.

    EUp: Germany needs a UKIP

  • rate this

    Comment number 191.

    188.Eddy from Waring

    Nigel Farage ... Blair... put "snake oil rather than milk on his cornflakes".


    That? From Farage of all people?

    EUp: Farage is like the rest of us. He ain't perfect. I know of nothing which would make him nauseating and untrustworthy like Blair

    If you do, then please present it here.

  • rate this

    Comment number 190.

    Gavin H: "Barroso attacks 'very active spinning and bashing' in the corridors during summit against the Commission. Is that criticism of the Brits?"
    If he thinks that's bad, just wait till the 2050s when we're the biggest economy in Europe.

  • rate this

    Comment number 189.

    2 Hours ago
    MH, the German taxpayers were promised they would not have to lose money, in fact it is illegal for them to do so.

    EUp: I didn't have time to stop and read ot properly but a headline in the Sueddeutsche Zeitung said that the latest goings-on were going to cost the (German) taxpayers a lot of money

  • rate this

    Comment number 188.

    Nigel Farage believes...that Mr Blair... voters would not listen to a man who put "snake oil rather than milk on his cornflakes".


    That? From Farage of all people?

    If I let myself start laughing I might never stop...

  • rate this

    Comment number 187.

    Margret, you don't believe in Lords and Ladies with titles. I commend your sentiments, and not for the first time.

    However, we are in Europe, and in most nations in Europe, you may find titled aristocrats. And, yes indeed, the Pope has a list of those who hold varying degrees of nobility.

    That you cannot conceive of special sessions where only titled aristocrats were present speaks only to you.

  • rate this

    Comment number 186.

    Greece, Spain & Italy are only the symptoms. France is the real sickness at the core of the EU.

    France has long set the tone for corrupt administration, big spending and the milking of prudent countries that now dominates EU thought.

    And now, France attacks Mittal on what seem to me racist grounds - an Indian with business acumen is taking on old-school socialism!

    France is a disgrace.

  • rate this

    Comment number 185.

    174 C London

    Yup. Greece is just symptomatic - but telling

    Its a race between debt acceleration, labour reforms and restructuring needed and the fixed calender of elections. I doubt a photo finish

    Structure at risk is the EZ but the fallout on the EU is unknown

    Merkel has totally mis-sold the situation to the German public but guess what - where money is concerned even the dumbest folk wise up

  • rate this

    Comment number 184.

    MH, the German taxpayers were promised they would not have to lose money, in fact it is illegal for them to do so.
    I think there is a lot of explaining to do from the current government.

  • rate this

    Comment number 183.

    @135 I call it tearing treaties to shreds as "mere scraps of paper". Both Maastricht and Lisbon treaties specifically forbid bailouts, whether by nations or by ECB- yet we are seeing one bailout after another by both ECB and nations
    The eurocrats will do ANYTHING- even ignore treaties- if it suits them; anything to prevent them having to find a REAL job and do honest WORK for once at normal wage.

  • rate this

    Comment number 182.

    180 DM

    "when Merket etc have to explain the billions in writedowns in a couple of years..Will there be talk of solidarity then?"

    Explain to whom? Do you think that she single handedly went ahead and doled them out without the democratic process necessary in any administration?

    Or do you, like demo, share a secret the rest of us are unaware of? Maybe if we read the DM?

  • rate this

    Comment number 181.

    160, 165, 172 by Austriacus, QEZ & Arthur sum it all up.

    We have an EZ system that produces local, ever deepening cash holes. The solution depends on selfless and responsible action particularly from the German Gov. That action might not be popular with some of the German electorate so we wait until after the elections.

    In the meantime, we philosophise about discipline and the poor eat cat food

  • rate this

    Comment number 180.

    Be interesting to know how things go when Merkel etc have to explain the billions in writedowns in a couple of years.
    Will there be talk of solidarity then?

  • rate this

    Comment number 179.


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