ESM gives green light to third Greek bailout package

The European Stability Mechanism (ESM) on Wednesday gave green light to Greece's 86-billion-euro bailout package, following lawmakers in several member states nodded to the plan.

The announcement was made after ESM's board of governors, comprising finance ministers of the Eurozone's 19 countries, hold a teleconference on the Financial Assistance Facility Agreement (FFA) with Greece and the adoption of a fresh Memorandum of Understanding (MoU).

Under the FFA, the ESM will provide up to 86 billion euros (95.6 billion U.S. dollars) in financial assistance to Athens over a period of three years.

The approval allows a first tranche of the program up to 26 billion euros on the way to disbursement.

The first tranche includes an up-front 10 billion euros buffer disbursed in ESM notes in a bid to repair the Greek banking system. The notes will not be transferred to Greece but go into a segregated account managed by ESM in its headquarters Luxembourg.

The other 16 billion euros aims to cover the repayment of the 7.2 billion euros bridge loan granted in July from the European Financial Stabilisation Mechanism (EFSM), the upcoming European Central Bank (ECB) and International Monetary Fund (IMF) payments, and some arrears.

Among the 16 billion euros, a total of 13 billion euros is set to be directly disbursed to Greece on Thursday, the day Athens has to repay a 3.2-billion-euro loan to the ECB; the remaining 3 billion euros will be disbursed no later than Nov. 30, "if Greece completes additional prior actions."

Greece seems to be provided adequate time to reconstruct its economy as the bailout program offered a maximum weighted average loan maturity of 32.5 years, and loan repayment due from 2023 to 2054.

Interest rate is also low, as ESM said, although depending on market conditions, the figure may stand at around 1 percent on average.

Earlier, parliaments of several Eurozone member countries, including Germany, the Netherlands, Austria, Spain and Estonia, overwhelmingly voted in favor of the bailout package, paving way for ESM's approval.

ATHENS TO IMPLEMENT AUSTERITY

The fresh MoU, signed between the European Commission (EC) and the Greek authorities, specified policy measures that the Greek government has agreed to undertake in order to tackle the main challenges facing its economy.

Athens needs to achieve a medium-term primary surplus of 3.5 percent of gross domestic product (GDP) by 2017 through measures such as value-added tax and pension reform, strengthen tax compliance and public financial management.

Other measures include recapitalization, market reforms and public sector efficiency improvement.

The "cornerstone" for Greece's debt repayment is to create a targeted 50-billion-euro Fund through privatization, which has moved a first step on Tuesday as the sale of operation rights for 14 regional airports to the German Fraport-Slentel consortium over the next four decades has be finalized.

"Greek authorities have an opportunity to restore financial stability. Implementation of the reforms is what will count at the end," Valdis Dombrovskis, EC's vice president for the euro, tweeted after signing the MoU.

DEBT SUSTAINABILITY

Whether IMF will participate in Greek bailout plan still remains uncertain as the Washington-based fund repeatedly reiterated its concern on the country's debt sustainability.

"Debt sustainability was assessed by the EC, in liaison with the ECB and with input from the ESM," ESM said in a document, adding that "debt sustainability could be achieved through a far-reaching and credible reform program and additional debt relief, excluding nominal haircuts."

It also noted that Greece already benefits from "very low" debt servicing in the coming years due to low "interest rates, interest deferral, and a long grace period on both EFSF loans and the bilateral loans that euro area countries provided to Greece."

on a quarterly basis, Greece will continue receiving reviews of the progress made in implementing the agreed MoU policy measures. "The disbursement of successive loan tranches will depend on the positive outcome of these reviews," the ESM said.

"It's not going to be easy. We are certain to encounter problems in the coming years but I trust we will be able to tackle them," said Jeroen Dijsselbloem, chairperson of the ESM board of governors.