European governments agreed on a third aid deal for Greece, signaling a determination to keep the country in the euro and setting aside doubts about its ability to repay its debts.
Finance ministers of the 19-nation euro zone endorsed an 86 billion-euro ($96 billion) loan program, following two packages worth 240 billion euros since 2010. The fresh money will be parceled out over three years as Greece enacts economic reforms.
The political accord will allow member states to sign off on the agreement next week and will buttress Greek Prime Minister Alexis Tsipras, who came to office in January vowing to roll back budget cuts. He backed down when threatened with ouster from the euro and faces the challenge of forming a more stable government, possibly after new elections.
“Euro membership isn’t unconditional, it requires major efforts from Greece,” German Finance Minister Wolfgang Schaeuble told reporters in Brussels late Friday. “Despite all the difficulties, all of us in the Eurogroup agreed that we wanted to seize this opportunity.”
Final approval in countries including Germany and the Netherlands hinges on parliamentary votes next week. While German Chancellor Angela Merkel’s coalition commands a comfortable majority in the Bundestag, the vote will be an opportunity for dissenters in her party to lodge symbolic objections to her crisis management.
Some 26 billion euros will be made available in the first disbursement, including 10 billion euros for a fund to recapitalize Greek banks, according to a Eurogroup statement. The rest will mainly be used to redeem a short-term loan that enabled Greece to make a payment to the European Central Bank in July and cover another 3.2 billion euros owed by Greece to the ECB on Aug. 20.
Greek bonds gained amid expectations that a new financing arrangement was at hand. The yield on Greece’s 2.1 billion euros of 3.375 percent notes due 2017 dropped 86.4 basis points to 13 percent Friday, down from a high this year of 61.1 percent in July.
Earlier on Friday, Tsipras won passage of economic reforms in parliament by relying on votes from parties that ran Greece at the start of the crisis and are now in opposition. Those parties may desert Tsipras in a confidence vote likely after Aug. 20, triggering new elections.
Tsipras’s conversion to free-market economics cost him the support of the anti-capitalist wing of his Syriza party. New elections may allow Greece’s most popular politician to re-emerge as leader of a broader pro-bailout coalition.
Dutch Finance Minister Jeroen Dijsselbloem said the broad-based parliamentary backing provides an assurance that Greece will stick to the program. He detected “sufficient ownership and political support” in Greece for the economic overhaul.
On the creditors’ side, the next battle looms in October when the International Monetary Fund decides whether to lend more of its own money to Greece. Germany is counting on the IMF to foot part of the bill, but has balked at IMF demands for Greek debt relief.
Euro governments must “provide significant debt relief, well beyond what has been considered so far,” IMF Managing Director Christine Lagarde said in a statement after taking part in the meeting by phone.
Greek debt will peak at 201 percent of gross domestic product next year, before dropping to 160 percent in 2022, according to the “baseline” scenario of European institutions. In negotiating Greece’s second bailout in 2012, the IMF wanted to see a debt level closer to 120 percent before contributing.
European officials said the IMF will shift the focus from Greece’s overall debt to its annual debt-service costs. By this standard, European governments could make Greece’s debt “sustainable” -- and bring in the IMF as a lender -- by postponing repayments and interest payments.
“Any deal is only as good as what you make of it,” Greek Finance Minister Euclid Tsakalotos said after the Friday meeting. “So let’s hope that the Greek people will be able to make the best of this deal.”