Greece and its international creditors took a big step Friday toward an agreement that will ensure the country gets the money it needs to avoid a potential bankruptcy this summer but which could spell more pain for austerity-weary Greeks.
For months, the bailout discussions have stalled amid disagreements over pension, tax and labour market reforms that Greece should take in order to get the rescue money due from its most recent international rescue. Without the money, Greece would once again be facing the prospect of having to exit the eurozone – so-called Grexit.
"The big blocks have now been sorted out and that should allow us to speed up and go for the final stretch," Jeroen Dijsselbloem told reporters following a meeting of the eurozone's 19 finance ministers in the Maltese capital of Valletta.
Once a broad agreement is reached in coming weeks, Dijsselbloem said the eurozone will come back to issues related to Greece's stringent medium-term budget targets and the country's debts – key conditions of the Greek government.
However, in return for getting agreement on those conditions, the Greek government will have to push through some further tough measures for the years ahead – on top of all those enacted over the past seven years.
Though Greek Finance Minister Euclid Tsakalotos said agreement had been reached on the basic issues that would allow bailout inspectors to return to Athens to iron out remaining issues, he warned of more hardship ahead for austerity-weary Greeks.
"There are things that will not satisfy us, and there are things that satisfy us," he said. "It is in the nature of every agreement for there to be compromises and things that will upset not generally the negotiating team but the Greek people."
Tsakalotos said further austerity measures demanded for 2019 – after Greece's current third bailout ends next year – will be legislated on in the next few weeks, along with Greek-proposed countermeasures to alleviate the pain. However, while the cuts are automatic, the countermeasures will only be implemented if Greece meets its fiscal targets.
The measures will include pension cuts in 2019 worth 1 per cent of Greece's gross domestic product, and an increase in tax revenues in 2020 worth another 1 per cent through broadening the tax base.
The counter-measures, including programs to alleviate child poverty and help those most in need, will offset those but only if Greece meets its targets.
EU Commission Vice-President Valdis Dombrovskis said a deal on the latest steps to keep Greece afloat should be within reach by the time eurozone ministers meet again on May 22 – easily in time for Greece's next big debt-repayment hump in July.
Another key development on Friday appears to be the ongoing involvement of the International Monetary Fund, which has been part of Greece's bailout programs since the first rescue back in 2010.
In recent months, there has been an open disagreement between the IMF and the eurozone over such matters as the sustainability of Greece's debts going forward.
"There is agreement on these main topics, on these big reforms, on the size sequencing and the timing – that is with the IMF absolutely yes," Dijsselbloem said. "I could not talk about an agreement on those issues if the IMF had not agreed."
The IMF agreed that progress has been made in recent weeks but that a number of issues still needed to be addressed.
"But we are at a point where we think there are good prospects for successfully concluding discussions on these outstanding policy issues during the next mission to Athens," said Gerry Rice, IMF spokesperson.
Without more bailout cash, Greece would struggle to make a debt payment in July, raising anew the prospect of default. The last time, Greece faced potential bankruptcy was in July 2015, when the Tsipras government eventually agreed a three-year bailout worth up to €86-billion ($91-billion).
As part of its third international bailout agreement, Greece has to make a series of sweeping reforms to its economy in return for the loans. But the talks have dragged on for months, freezing the latest loan payout and hurting the chances of a self-sustaining Greek economic recovery after years of recession and turmoil.
Tsipras' left-led government is pushing for a comprehensive deal that would cover more than just spending cuts and reforms by Greece, but also alleviate the country's debt burden and pave the way for its return to international bond markets later this year.
Greece has depended on international bailouts since 2010 after it was unable to borrow on international bond markets.
To receive the money, successive governments slashed incomes, hiked taxes and implemented market reforms. Though helping to put the public finances on a surer footing, the measures came at a cost – the Greek economy lost a quarter of its output.
Dijsselbloem conceded that the failure to agree the release of the next batch of bailout funds had harmed Greece's economic recovery in recent months.
"That momentum is slipping away from us so we really need to work fast and have it done certainly well in time for the next payments Greece has to make," Dijsselbloem said.
Currently demanded cutbacks include new pension cuts, a broadening of the tax base, labour reforms and privatizations. These will require approval by Greece's parliament, where Tsipras holds a three-seat majority.