Greece’s parliament yesterday passed a fast-track reform package to unlock bailout funds and wrap up a fourth and final review of its loan programme as it seeks more debt relief from its official creditors next week.
Greece is due to exit its latest bailout programme in August and will then have to rely on financial markets to cover its borrowing needs.
The country has a debt-to-GDP ratio of 179.8%, the highest in the 19-nation eurozone.
Athens is keen to pass the final review of the country’s compliance with reforms prescribed in its bailout before a eurozone finance ministers meeting on June 21. A green light on the review would release about €12bn ($13.97bn) of new loans from Greece’s latest €86bn bailout, its third since 2010.
The final payment from the bailout funds would add to a cash buffer the Greek government is creating and could serve as a fall-back option for refinancing needs.
Lawmakers passed the reform package 154-to-144 in the 300-seat parliament.
It was endorsed by lawmakers of the leftist-led alliance while all other opposition parties voted it down.
“This government smothered Greeks with taxes. It crushed growth and pushed the middle-class to poverty,” said conservative opposition leader Kyriakos Mitsotakis during a heated debate on the reforms bill.
“You created a large mass of desperate people who are drowning in debt and have no hope for the future,” he said.
Athens has agreed to adhere to a post-bailout fiscal trajectory that targets primary budget surpluses — excluding debt servicing outlays — of 3.5% of GDP until 2022 and of at least 2.0% thereafter.
This gives the government little room for manoeuvre for tax relief unless it fiscally outperforms, generating even larger budget savings.
The reform package legislation includes measures to expedite privatisations in the energy sector and tweaks in real estate taxes.
It also outlines measures that will go into effect in the post bailout period such as extra pension cuts in 2019 and a lower tax exempt threshold in 2020.
The Greek government could discuss the timing of a possible new bond issue after next week’s meeting of eurozone finance ministers, junior economy minister Alexis Charitsis said.
“All our efforts are focused on the Eurogroup of the 21st (of June) where we expect to have an agreement on debt relief,” Charitsis told a news conference in Brussels on Wednesday.
Asked whether Greece could issue new bonds before the end of its bailout programme, he said: “Any other discussions happen after the 21st.”
The Eurogroup of eurozone finance ministers will discuss possible new debt relief measures for Greece in Luxembourg on June 21.
EU officials have repeatedly said the meeting will be crucial to seal Greece’s financial future, as decisions will need to be made on the use of about €40bn ($47bn) that remains unspent under the €86bn eurozone-funded bailout programme which expires on August 20. Officials are considering several options to reduce debt servicing costs for Athens, including an extension of maturities and grace periods of up to 15 years on about €130bn lent to Greece under the second bailout.
One official said a compromise could be to extend maturities by between 5 and 10 years.
They are also considering a buy-out of expensive loans worth more than €20bn from the International Monetary Fund and eurozone central banks due over the next decade.
They would be replaced with cheaper loans from the European Stability Mechanism, the eurozone bailout fund.
Germany, the bloc’s largest economy, is cautious about this option. Greece is also likely to get new loans next week of about €11bn that could be used to increase its cash buffer to face possible future market turmoil, a senior Eurogroup official said on Wednesday.
The buffer would cover Greece’s borrowing needs for the next 18 to 24 months.
It could amount to about €20bn, officials said, including money raised by Greece on the markets.
That would facilitate Greece’s full return to market financing, and could allow Athens to issue bonds when market conditions are better and yields lower, over the next 18 months.
Athens returned to market financing with a five-year bond in July 2017 and issued a seven-year bond in February, which contributed to the cash buffer.