Eurozone ministers back 130bn-euro bailout for Greece

Eurogroup chief: "We are making every effort so that a new programme will be a success"

Eurozone finance ministers have agreed a second bailout for Greece after marathon talks in Brussels.

Greece will get loans of more than 130bn euros (£110bn; $170bn) and have about 107bn of its debt written off.

In return, it must slash its debt from 160% to 120.5% of GDP within eight years and accept a permanent EU economic monitoring mission.

The country needs the funds to avoid bankruptcy on 20 March, when maturing loans must be repaid.

The euro immediately rose on reports of the deal, which was announced early on Tuesday, after 13 hours of talks.

But a report by international experts obtained by Reuters news agency and the Financial Times warned Greece would need more help if it was to meet its debt reduction target.

Analysis

Among European officials and ministers, there is a huge sigh of relief. The country that has been at the heart of the eurozone's debt crisis has, for the moment, been taken off the critical list.

But it comes at a price. Permanent monitors from the EU, the IMF and the ECB will be placed on the ground in Athens to ensure there is no back-sliding. It is a humiliating and unprecedented intrusion into Greece's sovereignty.

To the question of whether growth will return to this battered economy, there is a shaking of heads. Perhaps in a decade, I am told. The risk is that the new cuts will only deepen an existing recession.

And the question remains: is Greece's future secure, or has this deal just bought time for the eurozone to build greater protection around its banks and around potentially vulnerable countries like Spain and Italy?

The confidential report was drawn up for the international "troika" set up to help Greece - drawn from the IMF, European Central Bank and European Commission.

It warned Greece would remain "accident-prone" in coming years.

Under the deal hammered out in Brussels

  • Greece will undertake to reduce its debt to 120.5% of GDP by 2020
  • Private holders of Greek debt will take losses of 53.5% on the value of their bonds, with the real loss as much as 70%
  • Greece's economic management will be subjected to permanent monitoring by eurozone experts on the ground
  • Greece will amend its constitution to give priority to debt repayments over the funding of government services
  • Greece will set up a special account, managed separately from its main budget, that must always contain enough money to service its debts for the coming three months

The Greek parliament is expected to vote on the bailout on Wednesday.

'Default avoided'

The agreement was announced early on Tuesday by Jean-Claude Juncker, prime minister of Luxembourg and chairman of the eurozone finance ministers group.

Mr Juncker said the deal would ensure Greece's future within the eurozone.

Start Quote

What we had overnight is an agreement in principle, not a final definitive rescue of Greece. Before we crack open the vintage Ouzo, let's just see how it goes down with the relevant private-sector lenders, politicians in the only creditor country that really matters - Germany - and Greek citizens.”

End Quote

European Commission chief Jose Manuel Barroso said the agreement would prevent "an uncontrolled default with all its grave economic and social implications".

He said Greece had no alternative than to pursue fiscal consolidation and structural reform.

In a statement, the Eurogroup warned the deal hinged "critically on its thorough implementation by Greece".

The head of the IMF, Christine Lagarde, said the deal "should give enough space for Greece to restore its competitiveness".

Speaking after the bailout was agreed, Greek Prime Minister Lucas Papademos said he was "very happy" with the outcome.

"It's no exaggeration to say that today is a historic day for the Greek economy,'' he added.

The BBC's Stephen Evans in Brussels says the agreement will mean deeper cuts in public spending than Greece has planned.

Jose Manuel Barroso: "I am aware of the heavy burden that the Greek people are having to bear"

The first rescue package worth 110bn euros in 2010 was not enough to avert Greece's deepening crisis.

"The funds that are coming in are not staying in Greece, are not being invested in Greece, are not here to help the Greeks get out of this crisis," Constantine Michalos, president of the Athens Chamber of Commerce and Industry, told the BBC.

"It's simply to repay the banks, so that they can retain their balance sheets on the profit side."

Anastasis Chrisopoulos, a 31-year-old Athens taxi driver, saw no reason to cheer the bailout.

"So what?" he told Reuters.

"Things will only get worse. We have reached a point where we're trying to figure out how to survive just the next day, let alone the next 10 days, the next month, the next year."

Votes scheduled

German and Dutch legislators are also scheduled to vote on approval for the deal next week. Politicians in both countries have been critical of lending more money to Greece.

Successive rounds of austerity measures, demanded by Greece's international creditors, have failed to restore growth and have provoked clashes between protesters and police.

The Greek government fell last year after ex-Prime Minister George Papandreou called for a referendum on the eurozone rescue package.

He was replaced by Mr Papademos, an unelected technocrat who is expected to lead Greece until parliamentary elections in April.

Measures passed by parliament last week set out 3.3bn euros' worth of cuts to salaries and pensions, and to health and defence spending - sparking a fresh series of protests.

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