Europe grants Greece debt bailout extension

Europe has granted Greece a crucial extension to its massive debt bailout, ending weeks of tension.

Friday’s agreement between Greece and its creditors in the 10-nation eurozone came at the cost of concessions including a commitment to spell out reforms within two days.

The deal will mean that Greece will avoid going bankrupt, at least over the four months of the extension.

It should also mean that capital controls will not be needed and that Greek banks will have enough money to stock up their ATMs.

To get the money, the Greek government has one more hurdle to clear: On Monday, it has to present a series of unspecified economic reforms measures that are deemed acceptable by creditors and rooted in Greece’s previously enacted bailout agreement – something the government had promised not to do.

Still, the Greek government will be the author of the reforms pursued and that represents a change from the past five years when Greece has relied on rescue money to avoid going bankrupt and was effectively ordered to enact a series of austerity measures.

“We have established common ground again,” Jeroen Dijsselbloem, the eurozone’s top official, said after Friday’s meeting in Brussels.

And Yanis Varoufakis, Greece’s finance minister, said the deal allows both Greece and Europe “to turn a page… As of today, we are beginning to be co-authors of our destiny”.

Varoufaki’s comments

Varoufakis conceded that the Greek government would be “in trouble” if the reform measures, which are likely to include a series of measures to tackle corruption and tax evasion, are not backed by representatives from the European Central Bank, International Monetary Fund and European Commission – previously known as the troika.

However, he insisted they “won’t be shot down by the institutions”.

If the list of reforms is sanctioned, then it will be further detailed and agreed upon by the end of April.

Friday’s agreement was clinched just a week before Greece’s 240bn euro ($270bn) bailout programme expires and is aimed at buying time for both sides to agree on a longer-term deal to ease the burden of the bailout loans.

The Greek government is not getting the time it requested on Thursday.

Instead of the six-month bailout extension it asked for, it is getting four – with Greece having to make big debt repayments after the new cut-off point, that is a sign that its creditors are not willing to give Greece free rein.

The Dow Jones index closed at a record high Friday as news of the Greek deal broke.

It was Wolfgang Schaeuble, the German finance minister, who was the bulwark against the Greek government’s ambitions. But he emerged from Friday’s meeting in conciliatory mood.

“This is an important step forward,” he said.

Schaeuble will no doubt be making sure that the promises Greece has made for the coming months will be kept.

“We are now in the process of confidence building,” he said. “That’s why there are strict conditions.”

As well as presenting a list of reforms by Monday, the Greek government has committed to honouring its financial obligations to all creditors “fully and timely”.

In addition, it has committed to make sure that it continues to post primary fiscal surpluses – what is left in the budget after debt-related payments.

In the statement outlining the broad thrust of the agreement, the eurogroup said “the economic circumstances in 2015” will be taken “into account”.

Varoufakis claimed that as a victory as it will could free up some cash to help pay for public services. Pensions, he insisted, would not be cut as previously planned.

Questions of budget

Greece also made the concession to not take any measures that might negatively affect budget targets, economic recovery or financial stability. Previously, it had sought to loosen its budget somewhat.

Dijsselbloem said Friday’s agreement was a “first step in this process of rebuilding trust” between Greece and its euro partners and allows for a strategy to get the country “back on track”.

“Trust leaves on horseback and returns on foot,” he said.

Varoufakis claimed the deal was a win for his country because his government will be able to decide what reforms to propose.

“The weekend will be one of joy and creativity,” he said. “We are writing our own reforms.”

Varoufakis said the substance of Friday’s deal was to all intents and purposes the same as the government’s proposal to the eurozone on Thursday.

He also said the deal has put paid to the view that ATMs would run out of cash and that he had no doubts that Greek bank shares will rebound.

“Greek depositors will be reassured,” he said.