Greece Secures Four-Month Aid Extension as Eurozone Backs Reform Plan

Yanis Varoufakis
Greek Finance Minister Yanis Varoufakis waits for the start of an extraordinary euro zone Finance Ministers meeting (Eurogroup) to discuss Athens' plans to reverse austerity measures agreed as part of its bailout, in Brussels February 20, 2015. Yves Herman/Reuters

Greece secured a four-month extension of its financial rescue on Tuesday when its eurozone partners approved a reform plan that backed down on key leftist measures and promised that spending to alleviate social distress would not derail its budget.

Finance ministers sealed the decision in a one-hour telephone conference convened by Eurogroup chairman Jeroen Dijsselbloem after the new leftist-led Athens government sent him a detailed list of reforms it plans to implement by July.

"Following Eurogroup teleconference decision, national procedures for extension of the Greek programme can begin," Valdis Dombrovskis, the European Commission vice-president for the euro, said on Twitter.

The ministers reviewed a six-page document signed by Marxist Finance Minister Yanis Varoufakis that watered down campaign promises to halt privatisations, boost welfare spending and raise the minimum wage, vowing to consult partners before key reforms and to keep them budget-neutral.

Both the European Commission and the International Monetary Fund called the Greek letter "sufficiently comprehensive to be a valid starting point for a successful conclusion of the review".

In a statement, the 19-nation Eurogroup urged Greece to develop and broaden the list of reform measures, based on "the current arrangement" - a euphemism for the bailout agreement which leftist Prime Minister Alexis Tsipras had vowed to scrap.

In a foretaste of tough negotiations to come, IMF Managing Director Christine Lagarde said the reform plan was "not very specific" and much clearer assurances would be needed on key reforms of pensions, taxation and privatisation.

And Slovak Finance Minister Peter Kazimir, reflecting deep scepticism among northern European fiscal haws, said: "Greeks have lots of heavy lifting to do until end-April. We all want to see numbers now."

Financial markets surged even before confirmation of the extension of the 240 billion euro EU/IMF bailout, saving Greece for now from an imminent banking collapse, state bankruptcy and a possible disorderly exit from the eurozone.

The country's longer-term financial future remains uncertain with Dijsselbloem telling the European Parliament the eurozone's most heavily indebted member is likely to need further assistance after two bailouts since 2010.

Markets Rally

The Greek letter pledged not to reverse ongoing or completed privatisations, and to ensure that the fight against what the government calls the humanitarian crisis caused by austerity "has no negative fiscal effects".

The six-page document, seen by Reuters, contained few figures but promised to improve tax enforcement, fight corruption and "review and control spending in every area of government spending".

Greek financial markets, which reopened for the first time since Friday's outline deal between Varoufakis and eurozone finance ministers, rallied strongly on relief that a meltdown had been averted for now.

Government bond yields dropped by three percentage points and stocks hit a 2-1/2 month high due even though the country's longer-term survival in the single currency remains uncertain.

Dijsselbloem, who is also Dutch finance minister, told the European Parliament that Athens was likely to need a further aid programme when the four months expires, saying: "I think we need to consider further support for Greece."

The eurozone could consider further debt relief measures if Athens met all the criteria specified in its November 2012 second bailout, "which hasn't happened yet", he said.

Dijsselbloem insisted a Greek exit from the eurozone had not been discussed and was not on the table, adding that the only government to have held a meeting to prepare for a possible "Grexit" was in non-euro Britain.

In EU paymaster Germany, Finance Minister Wolfgang Schaeuble, who took the toughest line in the Greek negotiations, wrote to the speaker of the lower house of parliament requesting a vote this week on extending the bailout.

Germany's rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the "troika" of EU, ECB and IMF inspectors.

The letter said Greece would phase in collective bargaining with a view to raising minimum wages "over time" but promised that any changes would be agreed with its partners.

While Tsipras has won broad support in his coalition for the deal clinched in Brussels, some hardline leftists have criticised it and the conservative opposition has charged that his illusions have been punctured.

In a televised address on Saturday, Tsipras called the tentative accord a victory for Greece, but participants said Athens was isolated in the talks and forced to make humiliating concessions because its banks were running out of cash.

Latvia's central bank governor, a member of the ECB's policy making governing council, cast doubt on elements of the Greek reform plan, such as tackling tax evasion and smuggling, questioning how much extra revenue they would raise.

"Those are soft measures, which may partly fill the budget gaps in the short-term, but (in the case of Latvia)… nobody planned or budgeted it as permanent revenues," Ilmars Rimsevics told state broadcaster LTV.

Commenting on ongoing negotiations with Greece, he said: "For Europe, in a certain way, fatigue has set in, and this nursing and instructing all the time is also very burdensome."