EU partners approve Greek bailout extension

Jan Strupczewski and Matthias Sobolewski  February 25, 2015

IMF Managing Director Christine Lagarde said the reform plan was "not very specific", and much clearer assurances would be needed on key reforms of pensions, taxation and privatisation. Photo: Reuters

Greece secured a four-month extension of its financial rescue when its euro zone partners approved a reform plan that backed down on key leftist measures and promised that spending to alleviate social distress would not derail its budget.

Finance ministers sealed the decision in a telephone conference convened by Euro group chairman Jeroen Dijsselbloem after the new leftist-led Athens government sent him a detailed list of reforms it plans to implement by the end of June.

The respite, to be ratified by some national parliaments in the coming days, averted an imminent banking meltdown and a potential state bankruptcy for now, but tough negotiations lie ahead soon over the country's longer-term economic future.

A Greek finance ministry official said the euro zone's most heavily indebted nation would start discussions immediately with its EU and IMF partners on meeting this year's financing shortfall.

"The discussions on Greece's funding gap will begin tonight, tomorrow morning," the official said, speaking on condition of anonymity. Options included allowing Athens to issue more short-term t-bills and using ECB profits on Greek bonds, he said.

As required by the creditors, Marxist Finance Minister Yanis Varoufakis had sent Brussels a six-page document late on Monday that watered down campaign promises to end privatisations, boost welfare spending and raise the minimum wage, vowing to consult partners before key reforms and to keep them budget-neutral.

In a statement, the 19-nation Euro group urged Greece to develop and broaden the list of reform measures, based on "the current arrangement" - a euphemism for the bailout agreement which leftist Prime Minister Alexis Tsipras had vowed to scrap.

IMF Managing Director Christine Lagarde said the reform plan was "not very specific", and much clearer assurances would be needed on key reforms of pensions, taxation and privatisation.

ECB president Mario Draghi gave the list a guarded welcome and said he would keep a close watch on ideas that depart from previous pledges. He warned the radical new government in coded central banker language against plans to help Greeks walk away from their private tax and mortgage debts.

"I would also again urge the Greek authorities to act swiftly to stabilise the payment culture and refrain from any unilateral action to the contrary," Draghi wrote.

Financial markets surged even before confirmation of the extension of the €240 billion EU/IMF bailout, saving Greece from a potential disorderly exit from the euro zone.

However, Dijsselbloem told the European Parliament the euro zone's most heavily indebted member was likely to need further assistance after two bailouts since 2010.

The Greek letter pledged not to reverse ongoing or completed privatisations, and to ensure that the fight against what the government calls the humanitarian crisis caused by bailout-driven austerity "has no negative fiscal effects".

Dijsselbloem, who is also Dutch finance minister, told EU lawmakers the euro zone could consider further debt relief if Athens met all the criteria specified in its November 2012 second bailout, "which hasn't happened yet".

EU partners approve Greek bailout extension