Greece has stepped back from the prospect of a disorderly eurozone exit after reaching a last-ditch deal to resolve the impasse over its €240bn (£177bn) bailout.
The outline agreement between Athens and its creditors in the single currency bloc to extend Greece’s rescue loans should help ease concerns that it was heading for the exit door from the euro.
In return, the country’s leftwing government has pledged not to roll back austerity measures attached to the rescue, and must submit, before the end of Monday, a list of reforms that it plans to make.
The chairman of the eurozone finance chiefs’ group, Jeroen Dijsselbloem, said Athens had given its “unequivocal commitment to honour their financial obligations” to creditors. He said that the agreement was a “first step in this process of rebuilding trust” between Greece and its eurozone partners which would provide a strategy to get the country back on track.
A senior Greek government official welcomed the agreement, saying it gave Athens time to negotiate a new deal. “Greece has turned a page,” the official added.
Greece’s finance minister, Yanis Varoufakis, claimed victory, insisting there was “no substantive difference” between the deal and a Greek compromise text that had been dismissed by Germany’s finance ministry as a Trojan horse for Athens to throw off austerity. “We are going to write our own script on the reforms that need to be enacted,” he said
But the Greek prime minister, Alexis Tsipras, will almost certainly face fierce reaction over the deal, both from hardliners in his radical left Syriza party and from the populist rightwing Anel – his junior partner in the governing coalition – for agreeing to continue with austerity measures as part of the deal, given that he was elected on an anti-austerity programme.
“Very heavy concessions have been made, politically poisonous concessions for the government,” Pavlos Tzimas, the veteran political commentator, told SKAI news.
The make-or-break talks began more than three hours late, delayed because of last-ditch preparatory talks involving the German finance minister, Wolfgang Schäuble, and his Greek counterpart, Varoufakis. This discussion yielded a fresh compromise to extend Greece’s loan agreement for four months, buying time for further negotiations on Greece’s vast debts, which stand at 175% of its economic output.
The agreement to stave off an imminent cash crunch in Greece was achieved despite a backdrop of fractious public exchanges between European politicians and the newly elected Syriza government in Athens.
The accord sets Greece a deadline of Monday to send a letter to the 19-nation group listing all the policy measures it plans to take during the remainder of the bailout period, to ensure they comply with the conditions and receive vital funds. But if ministers reject the next round of reforms, which have to be agreed by the end of April, “we are in trouble” said Varoufakis.
If the three institutions overseeing the bailout – the European Commission, the European Central Bank and the International Monetary Fund – are satisfied after an initial view, eurozone member states will ratify the extension. The ongoing role of the troika – now renamed the institutions – represents a climbdown for Tsipras and Varoufakis, who had pledged to cease dealing with troika inspectors.
Another concession is that Greece will remain constrained by the budget targets agreed with its eurozone partners. Although it can ease austerity, it will have to find another way of arriving at the same budget target.
“The only commitment that we took today is that whatever measure we take will not affect fiscal stability,” Varoufakis said.
Despite the restrictions, Varoufakis promised Syriza would not go ahead with pension cuts and VAT hikes that the previous Conservative government had planned. Instead of these austerity measures, Syriza plans to meet its budget targets with a crackdown on tax evasion – although Varoufakis admitted he had “no idea” how much this would add to government coffers: “If I gave you a number I would be lying.”
However, Schäuble, one of the toughest critics of the Greek government’s negotiating stance, indicated that Syriza will have to back austerity measures that it had vowed to repeal. “The Greeks certainly will have a difficult time explaining the deal to their voters,” he said.
The Irish finance minister, Michael Noonan, also voiced caution about the prospects of success, telling reporters: “It’s an important first step that we hope will lead to a successful second step on Monday night or Tuesday morning, but then of course there’s a third step with ratifications in parliament.”
Without a deal, Greece faced the prospect of quickly running out of cash because it is effectively locked out of the international lending markets. Its banking system, on life support from the ECB, is losing deposits at a rate of about €2bn a week. A €1bn shortfall in revenues for January – caused by some Greeks delaying tax payments in the runup to the election – has added to the strain on government finances.
The Syriza party, which swept to power in January with a promise to end Greece’s humanitarian crisis, is pressing to lift the austerity measures imposed by eurozone creditors in exchange for the bailout.
Syriza had been campaigning for a bridging loan to ride out immediate funding concerns, while it renegotiates the bailout terms. But the rest of the eurozone was opposed to a new loan deal unless Greece pledges to continue the austerity programme – which has included privatisations and public sector job cuts. Last night’s deal indicated that tough limits on public spending will have to remain.
“Greece has folded this hand, but the game of poker continues,” Raoul Ruparel of Open Europe said.
US stocks closed at record highs last night after the deal between Greece and its creditors in the eurozone. The Dow Jones industrial average closed up more than 150 points, its first record close for 2015. The S&P 500 ended the week at its third record close for the year.
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