June 14, 2018 / 4:00 PM / a year ago

Euro zone releases new loan to Greece before debt relief talks

BRUSSELS (Reuters) - Euro zone creditors approved on Thursday a new disbursement of 1 billion euros ($1.16 billion) to Greece, a move that was seen as a precondition for talks on new debt relief measures for Athens next week.

Greek Prime Minister Alexis Tsipras attends a parliamentary session ahead of a debate on a motion of no confidence by the main opposition in row over a deal on neighbouring Macedonia's name, in Athens, Greece, June 14, 2018. REUTERS/Alkis Konstantinidis

The decision came one week before a crucial meeting of euro zone finance ministers in Luxembourg on June 21 which is expected to decide on Greece’s financial future after its third bailout program ends on Aug. 20.

The euro zone’s bailout fund, the European Stability Mechanism (ESM), authorized the new payment which will be used for the clearance of arrears.

The release of funds was subject to a positive assessment by the European institutions of the clearance of net arrears by the Greek government.

“I am pleased to note that the Greek government has made sufficient progress in clearing its arrears to the private sector,” ESM Managing Director Klaus Regling said in a statement.

The decision on the new disbursement came minutes after the Greek parliament adopted a new reform package, which includes measures to expedite privatizations in the energy sector and tweaks to property taxes.

The reform, which is part of the terms agreed under an 86-billion-euro bailout program agreed in 2015, also outlines measures that will go into effect in the post-bailout period, such as extra pension cuts in 2019 and a lower tax-exempt threshold in 2020.

The move paves the way for a last disbursement of loans to Greece next week by euro zone lenders.

Of the nearly 40 billion euros left unspent under the bailout program, about 12 billion could be unlocked next week to expand a cash buffer that would help Athens tap financial markets in coming months.

The remainder could be used for debt relief measures such as a buy-out of expensive bonds falling due in the next decade.

They would be replaced with cheaper ESM loans, lowering Greece’s debt servicing costs and making more sustainable its huge debt of 179.8 percent of GDP, the highest in Europe.

The measure, alongside other possible debt relief options, will be discussed by EU finance ministers next week.

Reporting by Francesco Guarascio; Editing by Catherine Evans

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