Europe opted yesterday to keep Greece in the eurozone, agreeing to a huge 237 billion euro (US$313 billion) financial lifeline, but demanded that Athens meet a long list of conditions first.
The decision, reached after a marathon 13 hours of negotiations with private creditors and the IMF, should avert a messy bankruptcy, but leaves Greece facing years under EU wardenship.
After weeks in which some in the single currency area raised the specter of cutting Athens adrift, Italian Prime Minister Mario Monti said the agreement represented “a good result for Greece, the markets and the eurozone.”
Greek Prime Minister Lucas Papademos, who with European backing heads an emergency coalition government, pronounced himself “very happy,” after personally shuttling in and out of talks with top bankers.
Markets reacted with steady, if unspectacular advances.
However, economists injected a dose of skepticism, focusing on a giant task ahead for Greece to get its crushed economy growing again, and also casting wary eyes on other countries that could now face pressure — namely Portugal, and even France.
“Even with this agreement, most of Greece’s problems lie ahead of it, not behind,” Brussels-based commentator Sony Kapoor said.
Luxembourg Prime Minister Jean-Claude Juncker formally announced a deal shortly after 5am, saying the “comprehensive blueprint” would “secure Greece’s future in the eurozone” and safeguard financial stability “throughout the eurozone.”
However, he spelled out a series of conditions — including a time-limited rewrite of the Greek constitution — to be met before eurozone governmental loans of “up to 130 billion euros until 2014” could be handed over.
The US$313 billion bailout, obtained after 3.2 billion euros in spending cuts rammed through the Greek parliament during violent protests, also depends on bond-holders agreeing to a deal to wipe 53.5 percent off the paper value of privately held Greek sovereign debt.
Negotiators for the banks said this should deliver 107 billion euros in cuts to Greece’s 350 billion euro debt.
The eurozone will decide whether this exchange of devalued old bonds for new IOUs has been “successful” early next month, Juncker said.
The goal now is for Greece’s public debt to fall to 120.5 percent of GDP by 2020, instead of the present 160 percent of output.
Athens now should be relieved of the pressure to make debt repayments of about 14.5 billion euros on March 20.
However, the package is still contingent on changes to be implemented in Greece by the end of this month — as well as the “permanent” presence of EU and IMF officials on the ground in Athens to run the rescue program.
Athens is expected to anchor in its constitution within two months a legal provision for “ensuring that priority is granted to debt servicing payments,” in a bid to protect public lenders’ interests first.