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Eurozone Officials Reach Accord With Greece to Extend Bailout Eurozone Officials Reach Accord With Greece to Extend Bailout
(about 3 hours later)
BRUSSELS — European leaders agreed on Friday to extend Greece’s bailout for four months after weeks of tense negotiations. BRUSSELS — Ending an acrimonious standoff, European leaders hashed out a deal to extend Greece’s bailout by four months, giving the troubled country a financial lifeline and avoiding a bankruptcy with potentially destabilizing consequences for the region.
The deal, reached at an emergency meeting of eurozone finance ministers here, paves the way for Greece to unlock further financial aid from a 240 billion euro, or $273 billion, bailout deal — provided the country meets certain commitments laid out by its creditors. The agreement, reached at an emergency meeting of eurozone finance ministers here, paves the way for Greece to unlock further aid from its bailout, worth 240 billion euro, or $273 billion. But the creditors will dole out the funds only if Greece meets certain conditions, setting the stage for tense negotiations that could unsettle the markets and create more political friction with Germany and other European countries.
“I’m glad to report to you that the work has paid off,” Jeroen Dijsselbloem, the head of the Eurogroup of finance ministers, said at a news conference. “We have established common ground again.” If Athens moves slowly, it might not get the money for months. Or the deal could fall apart altogether, again raising the prospect of a messy Greek departure from the euro currency.
The deal is likely to give Greece breathing room. For one, it could help stem flights of deposits from the country’s banks, which have been bleeding money during the standoff between Greece and its creditors. “As long as the program isn’t successfully completed, there will be no payout,” Wolfgang Schäuble, the German finance minister, said after the negotiations.
But it will hardly move the country past the worst of its economic and financial troubles. The economy has shrunk by a quarter in the last five years, and unemployment stands at more than 25 percent. As part of the deal, Greece will have to introduce a series of reforms required by creditors, like making labor laws more flexible and rooting out corruption. While Greece will have some potential leeway, the government must show that it is not abandoning austerity measures unilaterally.
The new agreement will also require the two sides to continue to work through their differences. Greece, though, may still balk at the demands. The new left-leaning government, led by Prime Minister Alexis Tsipras, swept to power last month on pledges to rebuff European-imposed austerity in Greece. He also promised to get a better deal from the country’s creditors.
For one thing, Greece will not receive any of a €7 billion installment from the bailout until it has carried out all remaining reforms required by creditors, some of which Alexis Tsipras, the newly elected Greek prime minister, had pledged to roll back. Greece must also show that it is not abandoning austerity measures unilaterally. “You are asking a people to continue with a long, hard grind when they want to do something else,” said Gabriel Sterne, an economist at Oxford Economics in London.
That means that if Athens moves slowly, it may not get the money for months. Some also questioned whether the new left-leaning government, which rose to power last month on an anti-austerity platform, was actually capable of delivering the changes that Europe is demanding. The deal also does not address the fundamental problems with Greece’s economy. Over the last five years, the economy has shrunk by a quarter. Unemployment stands at more than 25 percent.
“You are asking a people to continue with a long hard grind when they want to do something else,” said Gabriel Sterne, an economist at Oxford Economics in London. “It’s a short-term agreement to tide Greece over, but it doesn’t even do that in the sense that Germany has said they won’t release money until the Greeks legislate reforms,” said Mujtaba Rahman, chief Europe analyst at the Eurasia Group based in London. “It’s not nearly enough to get Greece past the worst.”
Still, the agreement represents a breakthrough in the impasse that rattled the markets and raised questions about the future of the common currency zone. As a result, discussions may begin “very soon” on a possible third bailout for Greece, Jeroen Dijsselbloem, the head of the group of eurozone finance ministers, said at a news conference. Deciding what comes next was necessary because the program that was agreed to on Friday will expire in just four months. That is right before Greece must make two crucial bond payments worth 6.7 billion euros to the European Central Bank.
The major sticking point has been how closely Greece is prepared to abide by the tough conditions underpinning its bailout loans. For weeks, Greece has pushed to ease the more onerous terms of the bailout. While Mr. Tsipras will be able to propose rollbacks on austerity measures, the deal represents a steep climb down from his election pledges.
But Germany and other major creditors have insisted that Greece stick with the commitments of its original bailout. Germany, as well as countries like Finland, have been reluctant to risk more taxpayer money by lending it to Greece. Other countries, including Ireland and Portugal, which have hewed to their own austerity-pegged bailout programs, insist that Greece do the same. He and his outspoken finance minister, Yanis Varoufakis, have insisted that the painful spending cuts required by Greece’s creditors to mend the nation’s tattered finances, including minimum wage and pension cuts, must be removed to help reboot the economy. Mr. Tsipras had vowed to get rid of the current bailout program.
While the deal was hailed as a victory of sorts by the Europeans and the Greeks, analysts cautioned that what the agreement really does is postpone difficult issues for another time. But Greece’s creditors have insisted that Athens could not simply abandon previous accords to obtain crucial financing that the struggling country still needs. Despite Greece’s resolve in recent weeks, the country’s three main creditors — the European Commission, the European Central Bank and the International Monetary Fund — will still largely continue to dictate the terms of the bailout.
“When is a deal not really a deal? When it kicks the can down the road and when no one can agree on what was agreed,” said Peter Doyle, a former economist at the International Monetary Fund. The fight between Athens and its creditors in recent weeks has highlighted a larger challenge. While Greece became the first country in Europe to elect a leader with a specific mandate to push back against German-led austerity, European officials and institutions made clear that they would not bow to any electorate.
Mr. Doyle was speaking to the conflicting messages coming out of the two camps. European officials cast the pact as supportive of their view that money can be dispensed only if economic conditions are met. The Greeks, on the other hand, are claiming that the deal is symbolic of their new approach toward Europe, in which they are able to secure easier fiscal terms from Brussels and still get access to crucial funds. “There is a basic clash between national democratic accountability and European rules and obligations,” said Daniel Gros, the director of the Center for European Policy Studies. “The European Union can’t work if every new government can’t keep the commitments of previous governments.”
Asked at a news conference whether the eurozone’s major powers ignored the wishes of the Greek electorate, Mr. Dijsselbloem said the collective needs of the region also needed to be taken in account. “In the Eurogroup we have to work with 19 ministers who have 19 mandates,” he said, and “we have to reach a joint decision.” Decisions “will always be about money and about conditions,” he added.Asked at a news conference whether the eurozone’s major powers ignored the wishes of the Greek electorate, Mr. Dijsselbloem said the collective needs of the region also needed to be taken in account. “In the Eurogroup we have to work with 19 ministers who have 19 mandates,” he said, and “we have to reach a joint decision.” Decisions “will always be about money and about conditions,” he added.
The next stage of negotiations may prove just as tricky. Still, both sides hailed the deal as a victory of sorts.
Starting on Monday, Greece must present a list of overhaul measures that will represent a “starting point” for those talks for payments. The country’s bailout monitors — the European Commission, the European Central Bank and the International Monetary Fund — will then need to assess Greece’s progress before any money is paid out. The Greeks are claiming that the agreement is symbolic of their new approach toward Europe, in which they are able to bargain for easier fiscal terms from Brussels and still have access to crucial funds. Mr. Varoufakis portrayed the accord as “a way out for our country” and a “mutually beneficial arrangement” for Greece and its creditors.
The Eurogroup also decided to put €10.9 billion in bonds, previously controlled by Greece, into a rescue fund that can dispense money only at the request of the European Central Bank. “There is concern here,” Mr. Dijsselbloem said, and shielding the money would avoid any risk of its use by Greece for “the recapitalization or financing of government.” That money should be available only for the recapitalization of banks, he said. “We averted the view that a country that is heavily indebted and in a program cannot possibly claim that elections can change something,” he said.
European officials cast the pact as supportive of their view that money can only be dispensed if economic conditions are met. “The Greeks certainly will have a difficult time to explain the deal to their voters, ” Mr. Schäuble said.
Some analysts, though, cautioned that the agreement only postpones difficult issues for another time. “When is a deal not really a deal? When it kicks the can down the road and when no one can agree on what was agreed,” said Peter Doyle, a former economist at the I.M.F.
The next stage of negotiations could prove just as contentious as the talks in recent weeks.
On Monday, Greece must send its creditors a list of all the policy measures it plans to take over the next four months. If the measures are acceptable, European finance ministers could sign off on an extension of the bailout agreement on Tuesday.
At the same time, Greece is expected to start bargaining for a third bailout program, on top of the two it has already received, in hopes of securing a deal after the four-month funding runs out.
If Greece and its creditors do not come to terms, the situation will most likely raise further questions of whether Greece should even stay within the eurozone.
On Friday, during a news briefing in Paris with President François Hollande of France, Chancellor Angela Merkel of Germany took pains to say that the eurozone countries were intent on keeping Greece in the currency bloc. Mr. Hollande was direct: “Greece must stay in the eurozone,” he said.
But European leaders say this cannot come at any cost. Many have also acknowledged a growing sense that Europe could cope with a breakup with Greece, thanks to a host of firewalls that have been erected since 2012, the last time Greece faced an acute political crisis.
“This deal won’t be a game-changer for the Greek economy — the outlook there won’t change dramatically” because the funds will largely go to repaying Greece’s debts, not to the real economy, said Simon Tilford, deputy director of the Center for European Reform in London. “Any deal might not hold them over, and before very long we could find ourselves back in the same position in the not-too-distant future.”
Should that happen, he added, there is a “non-negligible risk” that Greece could exit the eurozone, even if Mrs. Merkel and others have publicly stated they do not want that to happen.
While the contagion effects would not be the same this time around, “it would still be a seismic development.”