The 5 Things You Need To Know About Greece’s Bailout Extension

By on February 23, 2015
europe-debt-crisis-greece-ultimatum

europe-debt-crisis-greece-ultimatum

  1. Germany Got What It Wanted

Germany spent the last few weeks insisting that it wouldn’t dismantle the bailout program and proceed with lending the necessary funds to Greece. The new government of Alexis Tsipras insisted that it wouldn’t extend the program and instead sought some “bridge” financing from the Eurozone. In the end, Greece asked to extend the program and pledged to follow its rules. The extension lasts until the end of June, leaving only weeks before Greece must make a few substantial loan repayments.

 

  1. Greece Receives Hope for some Leniency

 

First, the eurozone appeared to offer some leeway on Greece hitting its budget target for 2015. Given the sharp deterioration in the Greek economy and government tax receipts that seemed inevitable. The eurozone statement also doesn’t repeat the budget targets for future years of the existing program, which call for the government to run a surplus, excluding interest payments, of 4.5% of gross domestic product. Relaxing that requirement had been one of Mr. Tsipras’s main goals.

 

  1. Will The Deal Hold Up?

 

By the end of business Monday, Greece must submit a list of legal overhauls that it wants to adopt, based on the current program. Mr. Tsipras has said he wants to replace many of the mandated changes. But a number of the ones he dislikes most–such as cuts in pensions–are also the ones considered most vital by the Eurozone and the International Monetary Fund. If the Eurozone doesn’t like his proposal, ministers will meet again to discuss their next move.

 

  1. Politicians in Greece May Not Accept The Deal

 

The deal appears to go against some of Mr. Tsipras’s campaign pledges. Greece will still be subject to oversight by the European Commission, the International Monetary Fund and the European Central Bank, whom he had vowed to kick out. Rejecting such conditions would have left Greece without access to funds and at risk of its banks being cut off from the ECB. That could have forced Greece from the Eurozone, something the Greek public still opposes. But Mr. Tsipras’s Syriza party and his coalition partner may not be happy.

 

  1. Greece Will Probably Still Need More Money

 

Running lower budget surpluses this year, and possibly for years in the future, means Greece will need more funds. Eurozone officials have said they may lower interest rates on loans given to Greece, but it is unlikely to be enough. There is only around €15 billion ($17 billion USD) left in Greece’s bailout, around €10 billion of which is in a fund for Greek banks. As it stands now, the deal says those funds should be reserved for the banks and not for financing the Greek government.