Euro zone finance ministers agreed a 130-billion-euro ($172 billion) rescue for Greece on Tuesday to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.
The complex deal wrought in overnight negotiations buys time to stabilise the 17-nation currency bloc and strengthen its financial firewalls,but it leaves deep doubts about Greeces ability to recover and avoid default in the longer term.
After 13 hours of talks,ministers finalised measures to cut Athens debt to 120.5 per cent of gross domestic product by 2020,a fraction above the target,securing a second rescue in less than two years in time for a major bond repayment due in March.
We have reached a far-reaching agreement on Greeces new programme and private sector involvement that would lead to a significant debt reduction for Greece … to secure Greeces future in the euro area, Jean-Claude Juncker,who chairs the Eurogroup of finance ministers,told a news conference.
Greece will be placed under permanent surveillance by an increased European presence on the ground,and it will have to deposit funds to service its debt in a special account to guarantee repayments.
By agreeing that the European Central Bank would distribute its profits from bond-buying and private bondholders would take more losses,the ministers reduced Greeces debt to a point that should secure funding from the IMF.
Its an important result that removes immediate risks of contagion, Italian Prime Minister Mario Monti told a news conference.
While the deal provides time for the euro zone to put new crisis measures in place over the coming months,it means Greece will struggle for years without economic growth.
The austerity measures imposed on Athens are widely disliked among the population and will put pressure on politicians who must contest an election expected in April. Parliaments of Germany,the Netherlands and Finland must now approve the package.