MOSCOW (Sputnik) — As the June 30 deadline approached, Greece and its major international lenders — the European Central Bank (ECB), the International Monetary Fund (IMF) and the Eurozone countries — held several rounds of talks on debt settlement.
On Monday, media reports, citing a Greek government official, said the debt-ridden country would not pay its next loan repayment to the IMF.
The failure of Athens to reach an agreement with international lenders on its multibillion-dollar debt puts the country on the verge of default.
2010 bailout loan to Greece
Greece was particularly hard hit by the aftereffects of the 2008 world economic crisis.
Greece’s aggregate debt exceeded €300 billion ($335 billion). In 2009 alone, the country borrowed about €80 billion ($89.3 billion) or 30 percent of its GDP.
On April 23, 2010, Greece officially asked the European Union and the IMF for financial aid, as the country was unable to manage its debts on its own.
Its budget deficit stood at 13.6 percent of GDP, a record for the Eurozone.
On May 2, 2010, at an emergency meeting in Brussels, finance ministers of 16 Eurozone countries approved a €110 billion ($122.8 billion) EU-IMF financial aid package for Greece, with €80 billion ($89.3 billion) pledged by the European Union, including about €22 billion ($24.5 billion) by Germany, the largest EU economy. It was agreed that the loans by Eurozone member countries would be bilateral.
For its part, the Greek government pledged to cut government spending by €30 billion ($33.5 billion) in three years.
The IMF and the European Union provided aid to Greece for five years, with a preferential five-percent interest rate for three and a half year loans and their subsequent repayments in 2014 and 2015.
In March 2011, the EU authorities decided to extend the repayment term for Greece to seven years and cut the interest rate by one percentage point.
The loans were provided to Greece in tranches. Every quarter, before approving the next tranche, the creditors' mission visited Athens to assess the government’s progress in carrying out a belt-tightening program. Expert findings were used as a basis for the Eurogroup (Eurozone finance ministers) and the IMF to decide on issuing a loan.
Greece's austerity measures in return for financial aid
In exchange for financial aid, Greece had to implement austerity measures, targeting a number of macroeconomic indicators. The main condition was cutting the budget deficit.
In 2010, Greece's budget deficit went outside the €21.9 billion ($24.4 billion) scope set in a memorandum with the creditors, and stood at €23.1 billion ($25.7 billion). At the same time, the deficit went down by almost 64 percent, compared to 2009, when it stood at €36.2 billion ($40.3 billion).
The deficit was reduced by cutting government spending, including wages and pensions, as well as by slightly increasing tax revenues.
In mid-2011, the country’s authorities adopted an additional plan to cut spending by €28 billion ($31.2 billion) by the end of 2015, and significantly increased the privatization plan target to €50 billion ($55.8 billion). The implementation of austerity measures and the privatization of a number of state enterprises were accompanied by strikes and mass demonstrations in 2010.
Greece has achieved some success in cutting government spending and the budget deficit since the spring of 2010, but that led to a decline in GDP and a rise in the debt-to-GDP ratio around 190 percent. Furthermore, it was unable to return to long- and mid-term borrowing markets, which necessitated a second bailout package.
Extension of rescue package for Greece
The emergency summit of Eurozone leaders on July 21, 2011 approved a €160 billion ($178.6 billion) rescue package for Greece.
Four types of bond prolongation plans were proposed to investors. Greece was to swap near-maturity bonds for long-term bonds (up to 30 years) at different interest rates ranging from 4 to 6.8 percent.
Higher interest rates were offered for bond swaps with a discount — 80 percent of face value. This plan provided for the cancellation of about 21 percent of Greek debts by private investors. However, the process of getting private investors "voluntarily involved" dragged on, while the worsening economic situation in Greece showed that the scope of debt cancellation had to be increased.
In February 2012, international creditors from the European Central Bank, the Eurozone nations and the IMF agreed to provide a second financial bailout package to Greece of €130 billion ($145 billion).
Furthermore, an agreement was reached with private investors for €100 billion ($111.5 billion) of the country’s debt on their balance sheets to be written off.
The loan agreement with the European Union provided for serious cuts in the country’s budget spending.
In 2012, spending was to be cut by an additional €3.3 billion ($3.6 billion), or 1.5 percent of GDP. The largest spending cut was drug purchases for state hospitals – around €1 billion ($1.1 billion). Minimum wages of €750 ($836 dollars,) were cut by more than 22 percent.
In the next four years Greece was to dismiss 150,000 civil servants while the country’s unemployment was over 20 percent, or 1 million, and GDP went down by 6.5 percent in 2011.
In July 2013, the Greek parliament approved further austerity measures, including, in addition to dismissals, a reduction of the budget deficit and changes in taxation, municipal services and the public education system.
Government's policy prompted thousands of Greeks, including teachers, school security staff, municipal police officers, local government employees and unemployed, to take to the streets across the country.
Latest bailout program expiry
The second bailout package for Greece was due to expire on February 28, 2015.
On February 20, the Eurogroup agreed to extend the loan program for Greece by another four months in exchange for further reforms. Greece pledged to move toward EU banking, tax and other regulations. The rescue plan was extended until June 30.
Under the two financial aid programs, Greece has received $270 billion from its creditors, while its debt has exceeded $350 billion, which it is unable to tackle.