EUROPEAN leaders have agreed on a ?130 billion ($A161 billion) bailout for the collapsing Greek economy, averting the immediate threat of default on its massive loans.
But the deal is conditional on Greece implementing further austerity measures, which will bring more hardship to a nation already traumatised by spending cuts and recession.
The deal, concluded after marathon overnight talks in Brussels, includes a major write-down of debt owed by Greece to private investors, who have accepted a "haircut" of more than ?100 billion or 53.5 per cent of their holdings.
It also includes provisions to ensure loan money be "ring-fenced" so it can be clawed back if Greece fails to make further savage spending cuts.
The deal is double the size of the last bailout in 2010. Without it Greece, facing debt repayments of ?14.5 billion by March 20, would have gone bankrupt.
Greek Prime Minister Lucas Papademos hailed the breakthrough, calling it a "historic day" for Greece. Finance Minister Evangelos Venizelos said the agreement would allay fears that Greece would be forced out of the euro zone.
But its terms will mean decades of hardship for Greeks, a third of whom are already in poverty as the economy reels from massive cuts to government spending, jobs and wages. Greece has 48 per cent youth unemployment and its suicide rate has doubled since 2008.
The deal must survive further hurdles over the next month as it faces ratification by individual European Union parliaments and a stormy response from protesting Greeks, who have been rioting in the streets of Athens as the country endures a fifth year of recession.
Under the agreement, the Greek government has agreed to an extra ?325 million in spending cuts. Mr Papademos is expected to push through emergency legislation today that will further slash pensions and wages. In longer-term measures, 150,000 civil servants will be axed and labour laws ditched.
In Athens, residents were cynical about the outcome. Spyros Papadopoulos, an employee at a cosmetics company, said: Default is inevitable and all these sacrifices will be for nothing.
Our economy has collapsed and everybody knows it, said Katerina Freri, a civil servant at the Finance Ministry until her retirement this year.
Officially we have not gone bankrupt because it is in nobodys interest for us to go bankrupt and in Europe they fear the domino effect. But, unofficially, bankrupt is what we are, and at some point they will say it and there will be chaos here.
Euro zone leaders fear that if Greece defaults on its debt it would trigger a chain reaction of economic collapses across the EU and destroy the euro.
Dutch Finance Minister Jan Kees De Jager suggested that the troika overseeing the new bailout deal the International Monetary Fund, the European Central Bank and the European Commission permanently supervise taxation and spending in Athens.
Austrian Finance Minister Maria Fekter ruled out the idea. We cannot usurp the budget sovereignty of parliaments . . . But one can very well link the aid one gives to conditions.
The deal brings the total funds committed to save Greece, Ireland and Portugal to at least ?386 billion. But the latest bailout is unlikely to be enough to save Greece. A report by the troikas own analysts warned that Greek debt could reach an astronomical 160 per cent of its gross domestic product by 2020 if its recession deepens and structural reforms are not made.
Frequently Asked Questions about this Article…
What is the €130 billion bailout for Greece and why was it agreed?
European leaders agreed a €130 billion bailout (about A$161 billion) to avert an immediate default by Greece on massive loans. The package, concluded after marathon talks in Brussels, doubles the size of the 2010 rescue and is conditional on Greece implementing further austerity measures and debt restructuring to stabilise its finances.
What does the 'haircut' on Greek debt mean for private investors?
The deal includes a major write-down of Greek debt held by private investors — a haircut of more than €100 billion, or about 53.5% of their holdings. That means private bondholders accepted losses on the face value of Greek bonds, reducing the value of those investments to help shrink Greece's overall debt burden.
How will the bailout conditions and austerity measures affect the Greek economy and everyday people?
The agreement requires more austerity that will deepen hardship for many Greeks: an extra €325 million in spending cuts, emergency laws to slash pensions and wages, plans to cut 150,000 civil servants and loosen labour laws. The country is already suffering high poverty, 48% youth unemployment and a doubled suicide rate since 2008, so the measures are likely to mean years of pain for households and workers.
What is 'ring-fencing' of loan money and why does it matter to investors?
Ring-fencing means portions of the bailout funds are designated for specific uses and can be clawed back if Greece fails to meet conditions. For investors, this adds a layer of conditionality intended to ensure money is used for stabilisation rather than diverted, which can affect the timing and certainty of repayments and reforms.
Does the bailout guarantee Greece will stay in the eurozone?
The bailout reduces the immediate threat of a Greek exit — Greek officials called the agreement a historic step that should allay fears of forced ejection from the euro. However, the deal must still be ratified by national parliaments and withstand political unrest in Greece, so it does not guarantee a permanent end to exit risk.
What are the main risks and next steps that could affect whether the bailout succeeds?
The package faces ratification by individual EU parliaments and strong public protests in Greece, and implementation will be monitored by the troika (IMF, ECB and European Commission). Troika analysts warned that without sustained structural reforms the recession could deepen and Greek debt might reach 160% of GDP by 2020, so policy execution and political stability are key risks.
How does this Greek bailout affect the wider eurozone and investors worried about contagion?
The deal aims to prevent a default that eurozone leaders fear could trigger a chain reaction across the EU and threaten the euro. Combined with previous packages, the funds committed to support Greece, Ireland and Portugal now total at least €386 billion, signalling a broader effort to contain contagion and stabilise regional markets.
What does the bailout mean for bondholders and the future outlook for Greek debt levels?
Bondholders faced an immediate loss through the private-sector haircut, which lowers their claims on Greece. Despite the rescue, analysts warn the bailout may not be enough: if recession deepens and reforms fail, Greek debt could still climb to an estimated 160% of GDP by 2020, indicating continued sovereign risk for investors.
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