After weeks of struggling in marathon meetings, Eurogroup finance ministers have finally come up with another bailout package for Greece, removing from Athens the imminent threat of a state bankruptcy and a Greek exit from the common currency, the euro.
Ministers from the 17 eurozone countries and officials from the International Monetary Fund (IMF) and the European Central Bank (ECB) agreed after another 12-hour meeting in Brussels last night to cut Greek sovereign debts by €40 billion ($52 billion) and to release another tranche of €44 billion ($57 billion) of bailout loans. The money will be used to refinance Greek banks and to pay salaries and pensions for state employees.
"Tomorrow, a new day starts for all Greeks," Prime Minister Antonis Samaras told reporters in the early hours of Tuesday after staying up to follow the tense Brussels negotiations.
The sentiment was shared by his European colleagues. "This is not just about money,” said Eurogroup president Jean-Claude Juncker. “It is the promise of a better future for the Greek people and for the euro area as a whole."
Markets around the globe reacted positively to the deal with shares in Europe and Asia rising to a three-week high and the euro reaching its highest level against the dollar since the end of October, at about $1.30.
The measures agreed upon include cutting the interest rate on loans to Greece, and returning €11 billion (about $14 billion) to Athens in profits from ECB purchases of Greek government bonds. Ministers have also agreed to help Greece buy back its own bonds from private investors and to take further measures to lower its debt level significantly, to below 110 percent of GDP in 2022.
This last point is an acknowledgement that Greece will need another debt write-off, or haircut, in the future, but it leaves the issue sufficiently vague to help Germany and a number of other northern European countries that are opposed to such a measure to save face. On Thursday, the German parliament will have to approve this latest bailout package, and while the vote is expected to go through, there is mounting skepticism among German lawmakers that Greece will ever be able to fully repay its debts.
“This is another lie by our government,” the leader of the opposition in the German parliament, Social Democrat Frank-Walter Steinmeier, told German public TV Tuesday morning. “We need to be honest and tell German taxpayers that they will lose money on Greece.”
“It is true – this is just another lifeline,” says Constantine Michalos, president of the Athens Chamber of Commerce and Industry. “Don’t get me wrong, it is a very important sign of confidence in Greece, with positive repercussions on both the practical and the symbolic level.”
But unless the Greek government presses on with structural reforms which lead the economy back into growth, this breathing space will be of little effect, says Mr. Michalos. Greece needs to counterbalance the austerity measures prescribed by its international lenders by boosting competitiveness and business confidence.
“It’s hard enough,” says Michalos, “but we have very little time.”