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Eurozone finance ministers have agreed a second bailout for Greece after 13 hours of late-night talks in Brussels. Greece is to receive loans worth more than 130 billion EUR ($170 billion USD), BBC reports.
In return, Greece will undertake to reduce its debts to 120.5% of its GDP by 2020 and accept an “enhanced and permanent” presence of EU monitors to oversee economic management.
Greece needs the funds to avoid bankruptcy on Mar. 20, when maturing loans must be repaid.
After five straight years of recession, Greece’s debt currently amounts to more than 160% of its Gross Domestic Product.
The euro immediately rose on reports of the deal.
Repayment takes priority
The deal also means that private holders of Greek debt will take losses of 53.5% on the value of their bonds.
When all the elements of the exchange are accounted for, the loss to investors is expected to be as much as 70%.
Eurozone leaders and the IMF said in October that Greek debt should be reduced to a more sustainable level of 120% of GDP by 2020.
The deal provides for the presence of EU monitors of Greece’s economic management as some members doubt Greece’s commitment to its spending pledges.
Within the next two months, Greece will also have to pass legislation giving priority to debt repayments over the funding of government services.
Athens will also have to set up a special account, managed separately from its main budget, that will at all times have to contain enough money to service its debts for the coming three months.
The Greek parliament is expected to vote on the bailout on Wednesday.
‘Significant efforts’
The agreement was announced early on Tuesday by Jean-Claude Juncker, prime minister of Luxembourg and chairperson of the eurozone finance ministers group.
Juncker said the “far-reaching” deal would lead to “a very significant debt reduction for Greece” and ensure its future within the eurozone.
He said “the eurogroup is fully aware of the significant efforts already made by the Greek citizens”.
But he added that “further major and joint efforts by all parts of the Greek society are needed to return the economy to a sustainable growth path.”
The head of the IMF, Christine Lagarde, who also took part in the negotiations, said the deal “should give enough space for Greece to restore its competitiveness”.
Speaking after the deal was reached, 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,” Papademos said, according to AP.
The BBC’s Stephen Evans in Brussels says the agreement will mean deeper cuts in public spending that Greece had planned.
It also means there should be no default or any knock-on effects in the rest of the eurozone — at least for the moment, our correspondent adds.
But he says big questions still remain — including whether imposing medicine of this harshness will make the Greek economy stronger.
A first rescue package worth 110 billion EUR in 2010 was not enough to avert Greece’s deepening crisis.
Elections ahead
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 Papademos, an unelected technocrat who is expected to lead Greece until parliamentary elections in April.
Measures passed by parliament last week set out 3.3 billion euros’ worth of cuts to salaries and pensions, and to health and defence spending — sparking a fresh series of protests.