Saturday, February 21, 2015

Eurozone Agrees on Four-Month Extension of Greece Bailout


BRUSSELS—Greece struck a tenuous agreement for a four-month extension of its bailout Friday, removing immediate concerns over a potential exit from Europe’s currency union but setting the stage for more tense negotiations over the country’s financial future.

The deal, reached after weeks of often harsh exchanges between Athens and other European capitals, forced the left-wing government of Prime Minister Alexis Tsipras to temper many of the anti-austerity pledges that swept it into power last month.

The tough negotiations have frayed relationships between Greece and other governments, and particularly with Wolfgang Schäuble, the German finance minister.

“Now we hope that trust can grow again. There’s a lot of room for growth,” Mr Schäuble said afterward.

Markets rose on Friday as the agreement was reached, with the Stoxx Europe 600 edging up 0.6% to reach its highest level since November 2007. Both Germany’s DAX index and the U.K.’s FTSE 100 climbed 0.4%. The euro was up against the dollar and the yen.

U.S. stocks also rose on the news, as the Dow industrials, the S&P 500 and the Russell 2000 small-company index hit record highs.

Greece’s Finance Minister Yanis Varoufakis rejected claims that Friday’s deal constituted a surrender of the government’s anti-austerity promises. “Our pre-electoral program was about four years. This deal is about four months,” he said.

The agreement to extend the bailout that was due to run out Feb. 28 should fend off immediate concerns about Greece’s deteriorating finances and help stem an outflow of deposits from its banks.

However, concerns about Greece’s ability to pay its debts will linger. The deal leaves a series of hurdles that could trigger further bouts of nervousness, with the first to be encountered next week.

Under the agreement, Greece has to present by Monday a list of budget cuts and economic overhauls, which has to pass the scrutiny of the supervisors of the bailout, the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund. On Tuesday, finance ministers will review the proposals.

Only once these measures have been implemented will Athens received the next €7.2 billion slice of a €240 billion ($273 billion) bailout that has kept it afloat for almost five years.

Crucially, the four-month extension only takes Greece to the end of June, upping the pressure to negotiate a follow-up rescue deal in time for almost €7 billion in bond repayments to the ECB in July and August.

The Greek finance minister can take some small victories back to Athens. Greece will likely be allowed to run a smaller primary surplus—a measure of its budget balance that strips out interest payments—than the 3% of gross domestic product mandated by its bailout deal this year.

But the ministers’ statement stressed that this concession had been made only because the economy has performed worse than expected.

“Today we have found partners among those who up until very recently looked at us with suspicion,” said Mr. Varoufakis. “There are some partners who still look at us with suspicion.”
Keep reading.