Greece avoids a summer default, debt relief to come

Greece will avoid a default this summer after international creditors reached a milestone decision early Wednesday to unfreeze a batch of bailout loans and to find a way to ease the country's debt load.

The yield on the benchmark 10-year government bond dropped to just above 7 percent, a sign of greater investor confidence in the country's finances. After rising initially, the main stock index in Athens was down 1.2 percent in late afternoon trading.

In an 11-hour overnight meeting in Brussels, finance ministers from the 19 eurozone countries approved Greece's latest tax hikes and reform measures, a process that was first meant to have been concluded last October.

That paved the way for the ministers to approve the payout to Greece of loans worth 10.3 billion euros ($11.5 billion), in two installments by October. Without that cash, Greece would have been unable to make a debt repayment in July. The ministers also further discussed how to make Greece's existing mountain of loans more manageable.

"It's an important moment for Greece, after so much time," Greek Finance Minister Euclid Tsakalotos said after the end of the talks early Wednesday. "We have now an agreement not only on the review and the structural measures, but on debt."

"And I think there is some ground for optimism that this can be the beginning of turning Greece's vicious cycle of recession, (austerity) measures, recession, into one where investors have a clear runway to invest in Greece and turn the corner in favor of the virtuous cycle," Tsakalotos added.

The measure adds to other turning points in Greece as it balances its own debt woes with the arriving waves of migrants, as the Christian Science Monitor's Sarah Miller Llana reported earlier this month:

Greece’s geography puts it on the front lines, its economy is still reeling, and many say the EU has done too little for the struggling nation. But amid the wave of migration that has hit Greece, something paradoxical has happened: a renewed sense of pride has followed in its wake, something that has been glaringly absent since the nation received its first bailout in 2010....

Greece’s financial troubles have, unwittingly, trained them to respond to the refugee crisis. Communal kitchens emerged in Athens in 2011, and the activists behind the solidarity movements that sprouted across the country have now adopted the concept for refugees on the island.

Finance ministry officials said the promise to lighten Greece's debt load should make it easier for the country to start tapping international bond markets, from which it has been blocked for the past six years.

Greece has depended on international bailouts since it lost access to bond markets in 2010. To secure the rescue loans, it implemented a series of harsh spending cuts, tax hikes and reforms that reduced budget overspending but contributed to a punishing recession and cost about a million jobs in a country of some 11 million people.

Tsakalotos said the first payout of loans, worth 7.5 billion euros, is expected next month after final agreement on some outstanding details of Greece's latest austerity package. That will allow the government to reduce its domestic arrears of nearly 7 billion euros.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs the meetings of his eurozone colleagues, said the deal "really gives a perspective for Greece" and keeps the International Monetary Fund on board in the Greek bailout program. The IMF has insisted on lightening Greece's debt terms as a condition of remaining involved in the bailout. It is expected to rule later this year on whether it will continue to participate.

"I think it was a really important step," Dijsselbloem said. "We all realized that we had to get the deal. We also realized that it was difficult, because the IMF was asking a lot – and we were asking a lot of Greece."

Europeans and the IMF are at loggerheads over Greece's debt sustainability. The IMF is calling for significant lightening of the country's debt burden, and regards the country's deficit-reducing targets in coming years as too optimistic.

Teneo Intelligence analyst Wolfgango Piccoli was cautious, saying the eurogroup agreement leaves Athens stuck with harsh fiscal targets and only vague promises of debt relief.

"The deal does not provide much more than a loose roadmap to some sort of debt relief," he said in a note. "But the goal remains distant, very vague in substance and marred by uncertainties."