Euro-area finance ministers reached a provisional deal intended to keep aid flowing to Greece in return for a commitment to budget targets, buying time to work out the detail of longer-term Greek financing.
Talks in Brussels between officials from the 19 euro-area countries concluded Friday evening with an agreement to extend bailout funds to Greece for four months. In return, on Monday Prime Minister Alexis Tsipras’s government must submit a list of economic measures it will undertake. Finance chiefs will then decide whether his proposals go far enough.
“It’s an important first step,” Irish Finance Minister Michael Noonan told reporters after the meeting. “We’ll see if it’s enough on Monday night-Tuesday morning.”
U.S. stocks rose, sending benchmark indexes to records, on the prospect of an easing in the standoff between Greece and its creditors. The breakthrough reduces the immediate risk of Tsipras’s government running out of cash as early as next month.
The text of the agreement allows Greece to lower previously agreed targets on reaching a primary budget surplus, potentially freeing up some money to meet at least some of Tsipras’s election pledges. A Greek official said that tax increases and cuts to pensions had been averted in the accord.
“Our commitments are commitments we would want to make anyway,” Greek Finance Minister Yanis Varoufakis told reporters. “Sometimes like Ulysses you need to tie yourself to a mast in order to get where you’re going and avoid the sirens.”
The agreement opens a new chapter in a saga that goes back to 2010, when Greece became the first euro-area country to request an international bailout, causing a ripple effect that prompted four more rescues and raised doubts about the durability of the euro. Five years and as many prime ministers later, Greece’s economy has shrunk by about a quarter and it’s shouldering the highest unemployment in the region.
The deal removes the threat of the European Central Bank pulling the plug on the nation’s banks, a prospect that would have risked Greece crashing out of the euro. Capital controls are now out of the question, according to a euro-area official.
The next major financial hurdle comes next month, when the government must service 2.2 billion euros ($2.5 billion) of debt to the International Monetary Fund, with the treasury’s coffers nearly exhausted.
The outcome may still prove politically bruising for Tsipras and his Syriza party since his policies are subject to validation by the IMF, the ECB and the European Commission, the institutions collectively known as the troika from which Tsipras vowed to break free.
“We agreed that the institutions examine exactly whether the new list corresponds to the requirements of the program,” said Austrian Finance Minister Hans Joerg Schelling. “If the institutions do that, we will approve the extension of the program.” If they deem the steps to be insufficient, a finance ministers’ meeting will be called “immediately,” he said.
Monday is a bank holiday in Greece. Finance ministers will hold a conference call Tuesday to discuss the Greek response, after which the deal, if approved, will be put to national parliaments next week. That includes the Bundestag, where German lawmakers must approve any extension or changes to the terms of euro-area rescue loans.
A deal might go some way to help repair the frayed ties between Greece and Germany, the biggest European contributor to Greece’s 240 billion-euro bailouts and the chief proponent of economic reforms in return.
German Finance Minister Wolfgang Schaeuble struck a conciliatory tone after the meeting, saying the Greek government and officials “have it hard enough.”
“We don’t want to make it more difficult for them,” he told reporters. “We only want them to do what’s urgently necessary, in the interest of Greece and in the interest of Europe, to allow Greece to make progress on a difficult road.”