What next for Greece? Loan averts crisis but debt still huge

FRANKFURT - It's all but official: this summer's Greek crisis has been called off.
After an 11-hour meeting lasting into the early hours yesterday, European officials agreed to unfreeze more rescue loans and to consider ways to lighten Greece's debt load. That means Greece stands to get 10.3 billion euros ($11.5 billion) from its bailout loan package from European governments and the International Monetary Fund.
The money means Greece can make debt payments coming due in July. There won't be fears of a disastrous default and forced exit from the euro currency, as there were before Greece sealed a similar deal in July, 2015.
The country, however, is still far from safe financially or economically, meaning its crisis could yet flare up and once again cause jitters for the global economy.
Here's a look at what's next for the country.
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Q: Is Greece out of danger of defaulting and leaving the euro?
A: For the next few months, yes. There are a few more checks to be made on Greece's reforms before the money can be transferred. But the deal seems mostly done.
For the longer term, no.
The IMF and the eurozone governments, led by Germany, remain at odds over how much austerity Greece needs to do. In particular, Germany and the European states want Greece to run a budget surplus - when not counting debt interest payments - of 3.5 percent of annual GDP. That's a huge figure. And it could stifle economic growth because it would give the government little space to spend on the economy.
The European creditors want such a surplus to make sure Greece pays off its debts. But the IMF says the figure is unrealistic and wants a lower target, more like 1.5 percent of GDP.
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Q: Was that all they disagree on?
A: No, they also disagree on how to lighten Greece's debt load.
The IMF says Greece's debt, which is currently 180 percent of GDP, is "unsustainable." It wants European creditors to agree to lower interest rates on past rescue loans they gave Greece, and to push out their repayment dates.
The Europeans agree debt relief is possible. But yesterday's deal puts off discussion of concrete terms for debt relief until 2018.
Germany, the most influential of the governments that loaned Greece money, is reluctant to go to its parliament for approval of more breaks for Greece ahead of national elections in October 2017.
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Q: Were the talks on debt relief a failure, then?
A: Not completely, because both sides gave a little.
The IMF wanted debt relief now, but concede it could be taken up later.
For their part, the eurozone governments made an unspecified commitment to ease the payment terms of some bailout loans, without putting a number on how much money that would save. The 3.5 percent surplus figure remains in place, but could be revised for the years following 2018.
The European governments conceded a commitment to debt relief, but left it vague.
They got their wish to keep the IMF involved in the Greek bailout program as a credible adviser and lender.
Perhaps just as important, European officials avoided having more bad headlines about Greece as people in Britain get ready to vote on June 23 on whether to leave the European Union. The Greek crisis has not made the EU look good.
And with refugees from the war in Syria still arriving, the EU does not need another crisis on its hands right now.
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Q: What did Greece have to do to get the latest bailout money?
A: It raised taxes on everything from real estate to tourism - the country's cash cow. Value-added tax on purchases will rise to 24 percent this summer, from 23 percent, and higher levies were slapped on gasoline, coffee, alcohol, tobacco, luxury goods, fixed-line phone services, gambling and pay TV.
The government also overhauled the troubled pension system, raising contribution rates and reducing what future pensioners can expect to receive. And the Greek government is now bound by law to make automatic spending cuts if it doesn't meet future savings targets.
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Q: What do outside experts think of all this?
A: Guntram Wolff, director of the Bruegel think tank in Brussels, says it's positive that the eurozone governments agree Greece's financing needs - both borrowing to cover maturing debt and new borrowing - should stay below 15 percent of annual economic output.
"The positive side of it is that there is an agreement to disperse new resources, keep the IMF on board, and in fact an agreement in which there is at least some form of basic understanding about the burden of the debt and how to manage that burden," Wolff said.
Still, he said, the insistence on the 3.5 percent budget surplus target is awkward, he said.
"Basically, the next two years we continue to see a story where Greece will have to continue to do a significant fiscal effort to achieve their target, and it's going to be bad for growth and bad for an economy that's already in recession and in deep trouble."
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Q: Does that mean more misery for Greece?
A: Likely. Greece may have avoided a default this summer, but its mountain of debt continues to grow - peaking this year at nearly double to country's economic output, or 330 billion euros. Every Greek man, woman and child will eventually have to pay back an average of ?30,000 euros ($33,400) each, even if the repayment terms are improved.
For that to work, Greece will need to keep meeting its ambitious budget surplus targets and get its economy growing again. The European Union forecasts Greek economy will grow 2.7 percent next year after three years of no growth.
The IMF doesn't buy those numbers and says something more needs to give: More generous debt relief or more austerity - or a mixture of both.