U-turn on pension cuts, debt relief package approved for Greece

A eurozone bailout fund has approved the implementation of a major debt relief plan for Greece that it says would provide the crisis-scarred country significant savings over several decades.

The measures include interest rate improvements and repayment deferrals that were initially agreed upon in June. Meeting in Luxembourg on Thursday, the board of the bailout fund, the European Financial Stability Facility, activated the programme after determining that Greece had met a list of conditions.

Greece ended its third international bailout in August but remains under tight supervision by European Union institutions to continue administrative reforms and cost-cutting measures, despite high levels of poverty and unemployment.

The decision was taken a day after a European Commission report said Greece was complying with its post-bailout commitments.

Greece's bailout creditors also approved a request by the country to scrap pension cuts planned in 2019 after the country delivered a strong budget performance.

In a report published Wednesday, the European Commission said the previously agreed cuts were no longer considered necessary for Greece to meet a primary budget surplus of 3.5 per cent before debt servicing costs.

"The Greek authorities plan to implement a freeze in pensions until 2022, but they will not proceed with the pension cuts," the report said.

The government tabled a final version of the 2019 budget to parliament Wednesday after getting the nod from lenders.

According to the draft budget, the country's mammoth debt will decline from 180.4 per cent of annual output this year to 167.8 per cent next year - a drop from €335 billion to €323 billion (US$382 billion to US$368 billion). More than two-thirds of the debt is owed to Greece's European bailout creditors and the International Monetary Fund, though much of it is due for years following a debt relief package agreed earlier this year.

Greece ended its third straight international bailout in August but has not returned to markets partly as a result of the turmoil created by the budget standoff in Italy and a financial crisis in Turkey.

Though the country has no immediate need to raise money from the markets due to a cash buffer provided by creditors, it wouldn't be cheap if it wanted to - the market interest rate on Greece's 10-year bond stands at a relatively high 4.7 per cent.

- AP