The Eurogroup and IMF dug deep into the larder – but austerity measures still seem likely to extend Greece's recession
The Greek debt deal was a fudge – they always are – but Monday night's version came with added ingredients. The Eurogroup and International Monetary Fund have dug deep into the larder and thrown in everything they could find. There's a debt buyback at 35 cents in the euro; an under-the-table gift labelled a "return of profits" on the European Central Bank's holding of Greek bonds; a reduction in lending rates; and an extension to repayment terms for both interest and principal. Call it a rum and raison mix with a dash of vanilla and a hint of pecan.
This recipe was sufficient for peace to break out between the Eurogroup and the IMF. The politicians avoid the embarrassment of agreeing to formal debt forgiveness, even if giving Greece another 15 years to pay back certain loans, and at lower rates, is a haircut in all but name. And the IMF can boast that the deal comes close to achieving its ambition that Greece's debt-to-GDP ratio should be no higher than 120% in 2020. According to the spreadsheets, the ratio will be 124% by then.
Critically, Christine Lagarde, the fund's managing director, has won a commitment that the eurozone partners will ensure Greece's debts are "substantially below" 110% of GDP by 2022. Assumed translation: proper debt writedowns may be in the offing in future years.
What's not to like? Well, the inevitable criticism that the package is a kick of the can is inevitably correct. Whatever the spreadsheets say, nobody can be fully confident that this lightening of Greece's debt-load will produce economic growth on cue. Austerity measures – a condition of the deal - still seem likely to extend recession. Official lenders have taken too rosy a view in the past on growth, and are probably doing so again.
Still, assuming the private sector debt buyback happens (a programme that could yet cause a hiccup), the show will go on. From the German point of view, that represents a negotiating success since next year's domestic elections should be safely out of the way by the time Greece's debts have to be cut down to manageable size definitively. That head-on confrontation will come eventually. The store of minor manoeuvres – deferrals, rate-reductions and the like – is surely now bare.
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