European governments geared up to provide extra aid or debt relief for Greece after releasing the country’s first loan payment in six months, signaling renewed battles over how to stabilize the euro economy.
Euro-area finance ministers approved the payout of 49.1 billion euros ($64 billion) of loans through March and committed to “additional measures” in case Greece’s debt reduction veers off track.
While another cut in bailout-loan rates and an increase in infrastructure funding would top the list of extra measures, the policy makers hinted that outright debt relief -- still a taboo topic in creditor countries led by Germany -- would be on the table as well.
“Other tools are possible and it doesn’t make any sense to be more precise on these possible tools,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing the meeting on the Greek package in Brussels.
Thursday’s meeting concluded what European Union Economic and Monetary Affairs Commissioner Olli Rehn called an “odyssey” that started with two Greek elections in the first half of the year and concerns that popular opposition to bailout terms would force Greece out of the euro.
Greece will get 34.3 billion euros in coming days, covering 16 billion euros for bank recapitalization, 7 billion euros for the government’s budget and 11.3 billion euros to finance a bond buyback that was used to retire debt.
Another 14.8 billion euros will flow in the first quarter of 2013 as long as Greece meets conditions to be agreed on with creditors. That sum consists of 7.2 billion euros for bank recapitalization in January, plus three monthly tranches for the budget.
All told, the program will trim Greece’s debt to 128 percent of gross domestic product by 2020, still above a target of 124 percent set by euro creditors and the International Monetary Fund, according to documents released by the German Finance Ministry yesterday.
Lower loan rates and more European structural subsidies would make up 2.7 percentage points of the difference, leaving a need for “additional contingency measures” of 1.4 percentage points, according to a footnote in the German documents.
IMF Managing Director Christine Lagarde, less constrained by German political sensitivities in the run-up to a September 2013 election, said debt forgiveness is an explicit part of the understanding.
In a statement from Washington, Lagarde welcomed the euro governments’ “assurances to provide additional debt relief if necessary and provided Greece has achieved a primary budget balance in 2013.” [Bloomberg]