Greece debt: EU ministers agree ‘breakthrough’ deal

Euro zone finance ministers signed off on a new package of funds for Greece and committed to ease the country's debt burden after almost 11 hours of talks in Brussels.

In a deal hailed by eurogroup chairman Jeroen Disselbloem as a "breakthrough" the eurogroup deemed Greece to have met the terms of its first review, and sanctioned the release of €10.3 billion to the country. €7.5 billion will be released in June to cover Greece's financing needs, including a €2.3 billion repayment to the ECB in July, with the remainder disbursed in the autumn.

In a significant development, the group of euro zone finance ministers also set out a series of measures to deal with Greece’s debt pile based on short, medium and long-term measures.

In the short term, ministers agreed to a series of measures to smoothen the repayment profile of the current Greek loans and reduce the interest rate on loans.

They also set out a “possible” second set of measures which would be implemented at the end of the bailout programme in 2018, based on a debt sustainability analysis. This may include buying-out the IMF’s bailout loans.

Finally, the eurogroup agreed to consider more debt measures in the long-term “in case a more adverse scenario were to materialize,” which would include further debt reprofiling measures and the deferral of interest rates.

The measures will be enough to ensure the IMF’s participation in the third bailout, the eurogroup said last night, though it still needs to be passed by the IMF board.

Ministers agreed to base their assessment of Greece’s debt sustainability under the baseline scenario that Greece’s gross financing needs should remain below 15 per cent of gross domestic product (GDP) in the medium term after the bailout, and below 20 per cent of gdp thereafter.

"We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme," Eurogroup President Jeroen Dijsselbloem said in Brussels following the meeting.

Greece entered its third bailout programme last summer after months of bitter negotiations.

The first review of the €86 billion bailout had initially been scheduled to finish last October but has been beset by delays as creditors demanded more reforms from Athens.

On Sunday evening the Greek parliament passed a fresh raft of measures, including a package of contingency measures which would be enacted if deficit targets are missed. Among the measures pushed through parliament were further increases in taxation, new legislation on a privatisation fund demanded by creditors and progress on preparing the sale of non-performing loans in the banking sector.

Arriving in Brussels on Tuesday Minister for Finance Michael Noonan said he believed the measures agreed by Parliament would be enough to meet the terms of the first review.

“I think that Greece has put a lot of new measures through their parliament and I think that will be sufficient to meet the requirements of the group here in principle,” he said.

Greek bond yields fell while the Athens stock market climbed higher after securing the deal. Yields on short-dated Greek government bonds tumbled more than 100 basis points to 6.77 per cent, marking their lowest level in six months. Greece’s 10-year bond yield fell more than 30 basis points to 7.07 per cent, also a six-month low.

Athens’ benchmark ATG equity index climbed 1.4 per cent, with shares in Greek banks also rising, outperforming the broader European market.