Eurozone Officials Reach Accord With Greece to Extend Bailout
BRUSSELS — Ending an acrimonious standoff, European leaders hashed out a deal on Friday 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 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 euros, 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.
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.
“As long as the program isn’t successfully completed, there will be no payout,” Wolfgang Schäuble, the German finance minister, said after the negotiations.
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.
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.
“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.
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.
“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.”
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.
While Mr. Tsipras will be able to propose rollbacks on austerity measures, the deal represents a steep climb down from his election pledges.
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.
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.
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.
“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.
Still, both sides hailed the deal as a victory of sorts.
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.
“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 postponed 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.”